Yardeni: Market Are So Bearish, Only a Lehman-Level Crash Would Make Sense

Stocks stumbled out of the gate after the holiday weekend, with renewed trade tensions around China and uncertainty over Fed Chair Jerome Powell weighing on sentiment. The dollar is slumping, and earnings season is heating up—buckle up.

Despite all the negativity, Ed Yardeni, president of Yardeni Research, says the market may be overdoing it. In fact, the mood is so dark, he argues it would take a full-blown financial crisis to justify all the doom and gloom.

“We’d need something on par with the 2008 Lehman collapse to match this level of panic,” Yardeni said. “And there’s no real sign of that happening.”

Still, Yardeni himself has turned more cautious, cutting his S&P 500 target twice this year—from 7,000 to 6,000—as recession fears grow. The S&P is already down 10% in 2025, with Trump’s tariff threats fueling anxiety.

But there are reasons for hope. Recent signs that China may be open to negotiations could give Trump room to dial back his 145% tariff threat—possibly to a market-friendly double-digit figure.

That said, recession concerns are rising. Prediction markets now peg the odds at 56%, up from 20% at the start of the year. Yardeni sees a 45% chance of either a recession or stagflation.

Investor sentiment has cratered. Yardeni points to surveys showing a collapse in bullish views, with nearly half of consumers expecting stocks to fall over the next year. Among investors under 40, only 32% see the market rising.

Still, Yardeni warns against giving up on 2025 too soon: “If we see some early signs of recovery, writing off the year entirely could be a costly mistake.”

Backing that view, Evercore ISI strategists, led by Julian Emanuel, argue that investor pessimism might be overblown. With 90 days for trade talks to unfold, even a small positive headline could spark a rally—especially in small caps.

Their play? Use options on the iShares Russell 2000 ETF (IWM) to capture both upside and downside. Buy a call at $204 and a put at $170—profit either way if volatility hits.

For gold, Evercore suggests shorting the SPDR Gold Shares ETF (GLD), or using a collar strategy: sell a call at $323, buy a put at $297, and protect against a reversal.