Market veteran Ed Yardeni recently stated that while the US economy remains strong and there is no “landing” scenario ahead, the stock market may still face a 10% correction. Despite the continued economic strength supporting the “no landing” scenario, Yardeni warned that the S&P 500 could test its 200-day moving average around 4,700 in the coming months, indicating a classic 10% correction.
Yardeni also noted that rising bond yields, with the 10-year Treasury yield hitting its highest level of the year, are starting to impact stock prices. This can be seen in the percentage of S&P 500 stocks currently trading above their 50-day moving average, which has dropped from around 80% to about 30%. The S&P 500 may have hit a short-term top on March 29 and has since fallen below its 50-day moving average, indicating a potential move towards being oversold in the market.
However, despite these potential challenges, Yardeni emphasized that the US economy is still performing well. The strong March retail sales data exceeded economist expectations and led to an upgraded first-quarter GDP growth estimate of 2.8%. Real disposable income is rising and retirees have comfortably means to spend. Additionally, there has been significant consumption growth driven by immigrants within the US. These factors suggest that while there may be some volatility in the market in coming months, overall it will likely remain strong as long as it continues to perform well economically.