Ed Yardeni, a respected economist, anticipates the robust stock market rally, dubbed the “Roaring 2020s,” will extend its impressive run through 2026. However, he issues a cautionary note regarding the substantial fiscal stimulus measures proposed by the Donald Trump administration, suggesting they could introduce considerable instability into the economic landscape. Yardeni specifically points to large tax refunds for citizens, designed to inject liquidity into the economy, as a potential catalyst for bond market unrest, which could ultimately drive up interest rates and lead to heightened market fluctuations.
Yardeni recently articulated his concerns about a potential clash between extensive government spending initiatives and the inherent dynamics of the bond market. He highlighted that promises from Trump and Treasury Secretary Scott Bessent for significant taxpayer refunds, possibly backdated, could have unforeseen consequences. While these refunds aim to invigorate economic activity, Yardeni fears such a substantial influx of cash might displease “bond vigilantes”—investors who react to perceived fiscal irresponsibility by selling off government bonds, thereby pushing interest rates higher. He emphasized that a combination of renewed Quantitative Easing (QE) and considerable fiscal expenditure could precipitate market volatility in 2026.
Despite these apprehensions regarding fiscal policy, Yardeni maintains a remarkably optimistic stance on the equity market. He projects that the S&P 500 index will reach 7,700 by 2026, indicating approximately a 10% increase from its current valuation. This sustained growth, according to Yardeni, will be fueled by an AI-driven surge in productivity, which is expected to significantly boost corporate earnings. This economic uplift, he believes, will justify elevated market valuations, extending beyond just the dominant “Magnificent 7” technology companies.
Yardeni also links the push for these substantial refunds to a widening economic disparity within the nation. He characterizes the current situation as a “Chick-fil-A Economy,” where older generations, particularly Baby Boomers, benefit from substantial assets and minimal debt, enjoying considerable financial freedom. Conversely, younger demographics face significant challenges, especially concerning housing affordability. Yardeni posits that Trump’s proposed policies are designed to alleviate the financial grievances of the “have-nots,” acknowledging, however, that such relief might come at the expense of a potentially turbulent bond market.
Reflecting on market performance, the S&P 500 has seen a 17.67% increase year-to-date, with the Nasdaq Composite and Dow Jones indices registering gains of 21.75% and 14.32%, respectively. However, recent trading sessions concluded with slight downturns for key market trackers; the SPDR S&P 500 ETF Trust experienced a 0.36% dip, and the Invesco QQQ Trust ETF declined by 0.48%. Furthermore, futures for the Dow Jones, S&P 500, and Nasdaq 100 indices indicated a weaker opening for subsequent trading periods.