MW This market maven raised his S&P 500 target three times this year. Now he says there's too many bulls

By Jamie Chisholm

Contrarian indicators are making Ed Yardeni wary of a short-term pullback for stocks

56 and counting. That's the number of record closing highs the S&P 500 SPX has registered in 2024. And we've only just started what is usually one of the best months of the year for stocks.

A market regularly reaching fresh peaks, with any dips swiftly bought, can make investors feel invincible. Such conviction helps power rallies, but may also contain the seed of their demise.

Veteran market maven Ed Yardeni of Yardeni Research has been upbeat about U.S. stocks all year. At the start he had, he says in a new note, the highest target on Wall Street for the S&P 500: 5,400 by the end of the 2024. That level was beaten by mid June. "We weren't bullish enough, as the stampeding bulls left hoof marks on our backs," Yardeni says.

So, on July 10 he raised his target to 5,800. That was surpassed the day after the U.S. election. Up he went again, forecasting 6,100 on what he calls Federal Reserve dovishness and Trump 2.0. "We remain bullish on the outlook for the U.S. economy and stock market through the end of this year and decade. We think the Roaring 2020s could turn into the Roaring 2030s," he says.

However, he also believes: "[F]or the here and now, there may be too many charged up bulls."

Yardeni notes the move in bitcoin (BTCUSD) - whose breach of $100k on Thursday took its gains since the election to about 44% - as an example of the current exuberance. And he reckons that contrarian indicators are turning bearish.

One is the Investors Intelligence Bull/Bear Ratio, which has jumped from 2.3 in mid-October to 3.9 last week. The percentage of bull views is up to 62.9%, which Yardeni says is around historical highs.

Another contrarian indicator relates to moving averages. "The S&P 500 is now 11.2% above its 200-day moving average, signaling that the market may be overbought. Financials are especially overextended," he says.

Then there's households' optmism about the market. The Conference Board's consumer confidence index survey for November showed 56.4% of consumers expect stocks to be higher in 12 months. That's a record and even more bullish than just before the dot-com bubble burst in 2000, Yardeni observes.

Finally, Yardeni notes that the 3-month moving average of foreign buying of U.S. equities by private investors hit an all-time high in September. "Historically, foreigners have been poor timers of the U.S. stock market, tending to chase rallies into blow-off tops," he says.

All this stretched positivity suggests the market may see a pullback in January, though "that will probably be attributable to rebalancing portfolios at the start of the new year rather than the end of the old year to postpone taxes on substantial capital gains," says Yardeni.

"So it shouldn't last very long and would be a buying opportunity," he concludes. Keep in mind, he's targeting 7,000 for the S&P 500 next year - tying Deutsche Bank for the top of Wall Street.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are a fraction lower as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is up, while oil prices (CL.1) fall and gold (GC00) is trading around $2,635 an ounce.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6075.11    1.27%   1.71%   27.37%  32.48% 
   Nasdaq Composite                                                     19,700.72  3.36%   2.24%   31.24%  37.38% 
   10-year Treasury                                                     4.192      1.70    -11.80  31.11   -3.84 
   Gold                                                                 2663.7     -0.38%  -1.04%  28.57%  31.81% 
   Oil                                                                  68.04      -0.16%  -3.39%  -4.61%  -4.52% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

The November nonfarm payrolls report will be published at 8:30 a.m. Eastern. Economists forecast that a net 214,000 jobs were added, up from a storm-affected 12,000 in October. The unemployment rate is expected to tick up to 4.2% from the previous month's 4.1%, while month-on-month hourly wages will grow 0.3% against 0.4% in October.

Other U.S. economic data due on Friday include the preliminary reading of consumer sentiment for December at 10:00 a.m., followed by consumer credit for October at 3:00 p.m.

Fed officials making comments include Gov. Michelle Bowman at 9:15 a.m., Chicago Fed President Austan Goolsbee at 10:30 a.m., Cleveland Fed President Beth Hammack at 12 noon, and San Francisco Fed President Mary Daly at 1 p.m.

California suffered a 7.0 magnitude earthquake that triggered a tsunami warning for hundreds of miles of the U.S. West Coast.

Shares of lululemon athletica (LULU) are jumping 9% in premarket action after the clothing brand delivered bumper overseas sales growth.

DocuSign stock $(DOCU)$ is jumping 15% after the e-signature company's earnings beat Wall Street estimates.

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The chart

The market is throwing up some relative valuation extremes, notes Callum Thomas of Topdown Charts. Here's the relative valuation indicators for small caps vs. large caps, value vs. growth, and global vs. U.S. stocks (presented as a z-score).

"All 3 have reached extreme cheap levels, and collectively are at the lowest point since the dot-com bubble. This should be ringing alarm bells due to the parallels to the peak of the dot com bubble - but also providing cause to pause and think about what the next big multi-year investment themes might be," says Thomas.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   GME     GameStop 
   TSLA    Tesla 
   NVDA    Nvidia 
   PLTR    Palantir 
   AMC     AMC Entertainment 
   SOUN    SoundHound AI 
   MSTR    MicroStrategy 
   SMCI    Super Micro Computer 
   TSM     Taiwan Semiconductor Manufacturing 
   AAPL    Apple 

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-Jamie Chisholm

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December 06, 2024 06:36 ET (11:36 GMT)

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