Ed Yardeni highlights a cautious yet optimistic market outlook, emphasizing that beyond the dominant big tech “Magnificent Seven,” the remaining 493 companies in the S&P 500 are poised to drive future gains through productivity advancements like automation and robotics. He encourages investors to recognize the broader earnings growth and more attractive valuations outside of big tech, suggesting a more balanced market where non-tech companies can “show off” and sustain the momentum of the current “Roaring Twenties.”
In the discussion, Ed Yardeni reflects on the current market environment, which he refers to as the “Roaring Twenties,” acknowledging the impressive gains seen so far in this decade. However, he expresses a more cautious outlook compared to some others, noting that the market has experienced significant upward movement and is now undergoing some profit-taking and reassessment. Yardeni welcomes this caution, suggesting that concerns about a potential bubble are healthy and help to deflate excessive market exuberance, contrasting this with the 1999 bubble when few recognized the risks.
Yardeni addresses the question of whether the S&P 500 can continue to achieve double-digit gains without the dominant influence of big tech companies, often referred to as the “Magnificent Seven.” He believes it is possible, emphasizing that the remaining 493 companies in the index—the “impressive 493”—have been overshadowed but are poised to shine. These companies stand to benefit significantly from advancements in productivity driven by technologies such as automation, robotics, humanoids, and autonomous driving, which will enhance their earnings potential.
Contrary to the popular narrative that earnings growth is limited to the big tech giants, Yardeni points out that the broader market has performed well in terms of earnings. He highlights that many companies outside the Magnificent Seven have shown solid earnings results, indicating a more balanced and diverse growth landscape within the S&P 500. This suggests that investors should pay more attention to these other companies as potential drivers of future market gains.
Yardeni also discusses valuation metrics, noting that the Magnificent Seven currently trade at a forward price-to-earnings (PE) ratio of about 27 times, while the rest of the market trades at a more modest 19 to 20 times forward PE. This valuation disparity implies that the big tech stocks may become less dominant in terms of market value, while the broader market could gain relative importance as investors seek value and growth opportunities beyond the tech giants.
In summary, Ed Yardeni advocates for a more cautious but optimistic view of the market, emphasizing the potential for non-tech companies to “show off” and drive future gains. He encourages investors to look beyond the headline-grabbing tech stocks and recognize the productivity-driven earnings growth emerging across a wider range of industries. This shift could lead to a more balanced market where the impressive 493 companies play a leading role in sustaining the momentum of the Roaring Twenties.
