Ed Yardeni’s Outlook for the Rest of the Year

by Marilou Moursund on September 24, 2013

in Economic Indicators,equity market,Fed policy,Fiscal Policy

With Europe stabilizing, China improving, and the Federal Reserve removing the likelihood of tapering its bond buying program (Q.E. or quantitative easing), the primary risk to a continued good market outlook is the budget and debt ceiling battle. From Ed Yardeni’s Morning Briefing today:

Strategy I: Yearend. Odds are that the federal government won’t shut down and that the debt ceiling will be raised over the next few weeks. Odds are that the Q3 earnings season won’t be great, but won’t be terrible either. Odds are that the US won’t attack Syria anytime soon and that the Obama administration will commence discussions with Iran about terminating the country’s nuclear weapons program in exchange for lifting sanctions imposed by the US and our allies. Odds are that China’s economy will continue to grow at 7.5%, as promised by the new government. Odds are that Europe’s recession is over and that a gradual recovery is underway. Odds are that the US economy will continue to expand at a slow, but steady pace. On the other hand, it’s harder to assess the odds of whether the FOMC will taper QE at either one of this year’s remaining two meetings.

They say that markets hate uncertainty. There seems to be less of it right now than there has been in quite some time. Admittedly, there are plenty of investors who fear that the latest fiscal fistfight in Washington

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could lead to an October fiscal fiasco similar to the one that sent stock prices reeling during the summer of 2011. In my opinion, that just sets the stock market up for yet another relief rally if push does not come to shove between the Democrats and Republicans. That would fit nicely with the seasonal pattern of yearend Santa Claus rallies.

The lessening of uncertainty is the main reason the market has rallied over the last several weeks.

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