When the stock market goes sky high, my instinct is to look for a parachute.
So after more than three years of colossal gains, I have been checking that my safety equipment is in good shape — that I’ve got enough cash and high-quality bonds to help withstand a major setback in the stock market.
Even so, I’ll concede immediately that I don’t know where stocks are heading. It’s possible that the bull market, powered by investor euphoria about artificial intelligence, could have years to run.
While I remain an inveterate skeptic, some sober and astute people are far more bullish than I am.
Among them is Edward Yardeni, an independent strategist and economist with a Ph.D. from Yale. He usually leans toward optimism, and has been better at calling market bottoms — as he did, in conversations with me in 2009 and again in 2020 — than at anticipating crashes.
For more than six years, he has been among the most positive of strategists, declaring at the start of this decade that we were about to experience what he calls “the Roaring 2020s”— a period ultimately characterized by tech-driven productivity gains and a bull market in stocks.
Now he’s doubling down on that assessment, saying there is an 80 percent probability that the good times will continue for years, with the stock market roaring through at least the first part of the 2030s.
I recently met with Mr. Yardeni and he explained his positive thinking.
Roaring Decades
Right now, Mr. Yardeni’s bold predictions of a “Roaring 2020s” seem modest, because it’s already been a great decade for stocks.
Taking a long view, he says the stock market tends to rise unless “geopolitical” issues derail the economy and the markets. Don’t underestimate “the incredibly resilient U.S. economy,” which keeps growing despite impediments, he said.
Most of Wall Street today is bullish, too. The mood was vastly gloomier in 2020, early in the Covid 19 pandemic, when Mr. Yardeni correctly called the bottom of a bear market that March, and declared a few months later, in August, that the “roaring” decade was underway.
When he made that call, the pandemic death toll was still mounting, Covid vaccines had not yet been released, and the stock market and the economy were recovering from a severe but short-lived recession.
Mr. Yardeni said that pent-up demand would spur the economy at first, and that technological advances would propel it as the decade unspooled. The release of ChatGPT in November 2022 surprised him and he has pointed to A.I. as a source of rising productivity and extraordinary profits for U.S. companies.
So far, he’s been right for the 2020s. Through Thursday, the S&P 500 was up 138 percent since Dec. 31, 2019. “I see all that continuing,” he told me. “There’s a very good chance that this is just the start.”
If the S&P 500 reaches 10,000 by the end of this decade, as Mr. Yardeni expects, it will have gained 209.5 percent. That would place the ’20s in third place for all decades since the 1870s, according to calculations by Joe Abbott, chief quantitative strategist at Yardeni Research.
It wouldn’t be much of a stretch. Reaching the 10,000 target by the end of the decade would require only that the U.S. stock market grow at the pace it’s been averaging since the end of World War II — a bit over 7 percent annually, in price, and more than 10 percent annually, in total return, including reinvested dividends.
“That pace would just be returning to ‘normal,’ after the fantastic returns we’ve had the last few years,” Mr. Yardeni said.
Here are Mr. Abbott’s calculations for the S&P 500 and its predecessors for the five other great stock market decades since the 1870s. These are price increases, not total returns with dividends, which would be higher. The data starts at Dec. 31 of each year. For the numbers before 1957, when the S&P 500 started, he constructed returns using rough equivalents:
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1989-’99: 315.7 percent.
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1949-’59: 257.3 percent.
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1979-’89: 227.4 percent.
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2009-’19: 189.7 percent.
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1919-’29: 139.9 percent.
So the current decade, so far, is very close in performance to the 1920s.
“History shows that roaring decades really aren’t exceptional for the stock market,” Mr. Yardeni said. When the market is down, he said, it just seems that way.
Room for Worry
The original Roaring 20s, a century ago, ended with a stock market crash and the Great Depression. Mr. Yardeni is fully aware of the unfortunate statement of Irving Fisher, an eminent Yale economist, who said on Oct. 15, 1929, that the stock market had reached “what looks like a permanently high plateau.” The 1929 crash began two weeks later. Professor Fisher’s reputation has never entirely recovered.
While Mr. Yardeni views the current stock market as remarkable — driven primarily by surging corporate earnings rather than mere irrational exuberance — he is careful to say that the rally is not irreversible.
To the contrary, he said, geopolitics could disrupt the markets and the economy at any time, even if A.I. remains a gigantic positive force for stocks. Threats that worry him include the wars in Iran and Ukraine, the latest conflicts over tariffs, the simmering rivalry between the United States and China, and the possibility of runaway inflation.
Rising bond yields are a potentially serious problem, too, but they don’t yet worry him much. He assumes that yields are in a trading range that he called normal — 4 to 5 percent for the 10-year Treasury — and that won’t go much higher or derail the economy.
Still, they bear close watching. Back in 1983, Mr. Yardeni coined the phrase “the Bond Vigilantes,” warning then that “if the fiscal and monetary authorities won’t regulate the economy, the bond investors will. The economy will be run by vigilantes in the credit markets.”
Now, he told me, “the bond vigilantes are back.” Yields are rising as a result of a combination of rising deficits; uncertain policy from the Trump administration as well as from the Federal Reserve and its new chairman; and huge quantities of bond issuance both by the Treasury and by companies building A.I. infrastructure.
But he expects that the politicians will back down before matters get much worse, and that the markets will find an equilibrium allowing robust economic growth.
Mr. Yardeni sees no recession on the horizon, and tries to disregard politics in making assessments about the markets. “Under both political parties, I’ve found that the United States economy is incredibly resilient,” he said.
An Upbeat Perspective
“Good times in the markets are followed by bad times,” he said. “During the good times, people forget the bad ones. And then they do stupid things all over again.”
In that respect, he said that while the Trump administration’s deregulatory agenda has “stimulated the markets,” it’s possible that risk taking could go too far, leading to the kinds of corporate abuses that culminated in frauds like the Enron and WorldCom scandals of the early 2000s.
For now, though, it’s hard to bet against the stock market. Mr. Yardeni certainly isn’t.
If you engage in long-term stock investing, you may find that you share many of his assumptions: The economy, over the long run, will grow; corporate profits will increase; and the stock market will rise.
Whether the U.S. market manages to keep rising at its average historical rate — roughly doubling an investor’s stake in less than a decade, and creating staggering, compounded gains over a lifetime — is a major question.
I’m not sure that it can. I’m more worried than Mr. Yardeni is.
But by sticking with stocks in broad, cheap index funds, I’m betting that the stock market will do pretty well, if not necessarily as fabulously as in the last few years or over the last century.
Mr. Yardeni is taking it decade by decade. “If the S&P 500 reaches 10,000 before the end of 2029,” he said, “we’ll probably raise our target further.”
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