Yardeni says S&P 500 rally likely to see further broadening

Investing.com -- The rally in the S&P 500 should continue to broaden, Yardeni Research says, pointing to the increasing percentage of companies within the index showing positive 12-month changes in forward earnings.

According to Yardeni, this trend “typically happens during recoveries from bear markets as the economy continues to grow.”

Despite concerns from Federal Reserve officials regarding potential delayed effects of monetary policy tightening, which took place from March 2022 through August 2024, the economy has shown no signs of these "long and variable lags,” the market research firm notes.

In contrast, the S&P 500 has been reaching new record highs since the beginning of the year, outperforming the Index of Leading Economic Indicators (LEI), which has fallen since peaking in December 2021. The Index of Coincident Economic Indicators has also been strong, reaching new record highs despite the LEI's decline.

The rise in US Treasury note and bond yields since the Fed began reducing the federal funds rate (FFR) on September 18 reflects improvements in the Citigroup (NYSE:C ) Economic Surprise Index.

Yardeni Research posits that the neutral FFR might be closer to the 5.25%-5.50% range rather than the current 4.50%-4.75%, suggesting that economic growth might be “getting an extra boost from easier Fed policy.” However, Fed officials have a different view, believing the FFR remains restrictive and should be lowered to around 2.90%.

Yardeni highlights that the most recent data from Thursday's reports also supports the outlook for solid growth and a brighter future for manufacturing.

Initial jobless claims dropped by 4,000 to 213,000 for the week ending November 16, marking the lowest point since April. Although continuing claims rose by 35,000 to 1.908 million, the Veterans Day holiday may have influenced these figures.

Furthermore, regional business surveys, including those from the Federal Reserve Banks of New York, Philadelphia, and Kansas City, indicate that the national ISM Manufacturing Purchasing Managers' Index (M-PMI) may climb above 50.0 in the coming months.

Source: Investing.com