Long-time market bull Edward Yardeni is concerned stocks are getting too expensive.
If the S&P 500 forward earnings multiple ticks to 19 or 20, the Yardeni Research president warns a it could spark a “nasty correction.” Right now, the index is at 17. The historic norm is 15 to 16.
“I just don’t want too much of a good thing here. I’d like this bull market to continue at a leisurely pace not in a melt-up fashion,” he told CNBC’s “Trading Nation” on Friday. “That’s actually the risk.”
Yardeni, who spent decades on Wall Street running investment strategy for firms such as Prudential and Deutsche Bank, expected 2019 to be a winning year — even as stocks were plunging last December.
His current call comes as the S&P 500 and Nasdaq are hitting new record highs, and with the Dow is less than a half percent from its all-time high.
On Friday, the S&P closed at 3,066, just one percent from Yardeni’s 3,100 year-end target. His 2020 target is 3,500.
“I may have to consider taking some profits”
“If the market gets ahead of itself and gets to 3,500 a lot sooner… I may have to consider taking some profits,” Yardeni said. “I’d much rather stay fully invested in this bull market and not be forced to jump out just because it is ridiculously overvalued.”
However, Yardeni suggests he wouldn’t be out for long.
“I’m sticking with this bull market. I think it’s going to continue to see higher levels,” said Yardeni, adding this forecast isn’t contingent on who wins next November’s 2020 presidential election.
Even though he says President Donald Trump will most likely win a second term, Yardeni doesn’t see irrevocable damage to the markets or economy if a democrat wins.
“I’m not convinced that if [President] Trump loses and a Democrat wins that it necessarily implies a bear market and a recession,” Yardeni said. “But I think initially the market would not react well to a change.”