Top S&P 500 Target Strategist Advises: Time to Secure Profits

The stock market‘s streak of nine consecutive days of gains abruptly halted on Wednesday, just before the holiday break. The prevailing speculation attributes this interruption to the excessive bullish momentum driven by the recent pivot of the Federal Reserve, coupled with uncertainty surrounding the anticipated number of interest rate cuts in the coming year.

While there was a slight improvement in market sentiment on Thursday, indicated by stock futures, caution remains a key recommendation from Ed Yardeni, the chief investment strategist at Yardeni Research.

In an update to clients, Yardeni questions the prevailing optimism and underscores the necessity for a correction in response to the market’s overbought status. Despite his earlier forecast that the S&P 500 could reach 6,000 within two years, Yardeni maintains a year-end target of 4,600. He points to potential triggers for the recent market selloff, highlighting the escalating regional tensions in the Israel-Gaza conflict.

The U.S.-led security operation in the Red Sea involving other nations is seen by Yardeni as a legitimate reason for profit-taking amid rising risks in the Middle East.

Yardeni references bullish sentiment from recent surveys, such as the Investors Intelligence Bull/Bear Ratio and the American Association of Individual Investors. Additionally, he notes the CBOE equity put-call ratio falling to 0.61 on Wednesday, a potential sign of an overheated market.

Yardeni also acknowledges concerns about the selloff being attributed to the surge in trading volumes of put options with short expirations (0DTEs), a risky derivative gaining popularity.

Furthermore, Yardeni points out that crude oil prices failed to respond positively to Middle East tensions due to a weak global economy and record-high U.S. crude oil production. Despite heightened geopolitical risks, Yardeni closely monitors Brent crude prices for potential disruptions caused by the Israel-Gaza conflict.

Yardeni issues a warning about potential economic risks arising from Houthi attacks and the escalating insurance shipping costs, which could impact global trade routes. He draws parallels to the Suez Canal blockage in 2021 and acknowledges analysts’ concerns about inflation linked to the current geopolitical situation.

Looking ahead, Yardeni predicts a S&P 500 target of 5,400 for 2024, the highest among Wall Street strategists.