The stock market could tumble as much as 20% in early 2020, one long-standing bull warns
- The S&P 500 surged through the end of 2019 and is set to close out the year at a two-decade high, but traditional market bull Ed Yardeni thinks the market may need to cool in 2020 before reaching new peaks.
- Stocks are gaining "faster than I would have expected," the economist told CNBC on Friday, adding that the market could fall 10% to 20% in early 2020 before resuming its run-up.
- Yardeni expects earnings to grow 4% to 5% in the new year, and said that the safest bet is to wait for a market pullback to buy tech stocks while they're cheap.
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US stocks have soared over the last 12 months, but Ed Yardeni thinks the market may need to cool in 2020 before pushing higher.
The stock market is gaining "faster than I would have expected," the traditional bull told CNBC on Friday. Yardeni's forecast for the S&P 500 index sees it reaching 3,500 by the end of 2020, but with the new year just days away, the index is a mere 8% jump away from the target.
"I'm concerned about a possible melt-up here," Yardeni told CNBC. "[A] 10% to 20% [correction] would be quite possible if this market gets to 3,500 well ahead of my schedule."
The stock market breached record highs multiple times through December as a Santa Claus rally and improving economic data boosted share prices. Amazon stock pushed the Nasdaq Composite past 9,000 for the first time in history after the e-commerce giant announced a "record-breaking" holiday season.
The elimination of key risk factors has also fueled markets' performance through the fourth quarter. The "phase-one" US-China trade deal marked the first major breakthrough in trade negotiations between the feuding superpowers, and the UK's Conservative majority brought new clarity to Brexit uncertainties.
The S&P 500 is set to post its biggest yearly gain since 1997, but the rapid ascension and fading risks have Yardeni fearing that stock valuations are rising at an unhealthy pace.
"Bull markets do best when you've got a wall of worries," the market bull said. "What I'm worrying about is nobody is worried anymore."
Yardeni's consultancy assists Prudential and Deutsche Bank in forming their investment strategies, and the bull is still optimistic while looking to the new year, according to CNBC. The former Federal Reserve economist's 2020 S&P 500 target is tied for the highest on Wall Street, and he doesn't expect a recession to hit until after 2021.
Yardeni expects earnings to grow 4% to 5% in 2020, adding that the pace "isn't fabulous." He told CNBC he isn't rushing to put more cash into the stock market at its current level, and that the safest bet is to wait for a pullback before buying tech stocks while they're less expensive.
"This is not a cheap market," Yardeni said. "In early October, I looked around and said 'you know, maybe there's some value overseas. So maybe you really got to look at emerging markets.'"
The S&P 500 opened at 3,239.97 on Monday, roughly seven points lower from its all-time high.
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