US Economy's Resilience Drives S&P 500 Growth and Sector Rebalancing

Key Quotes

"well i i think the economy has demonstrated its resilience over the past few years i mean all the shocks that have hit it starting with the pandemic and then the uh the uh the terrorist most recently and yet real gdp is at an all time record high and so i'm just extrapolating that that continues that the economy will continue to grow through the end of the decade and that um by the end of the decade we could very well see the market anticipating something like 500 a share for the s p 500 put a 20 multiple on it and you get 10 000"

Ed Yardeni argues that the economy's demonstrated resilience, weathering shocks like the pandemic and recent terrorist events, supports continued growth through the end of the decade. Yardeni extrapolates this resilience to project potential market valuations, suggesting the S&P 500 could reach 10,000 by 2030 based on anticipated earnings and a 20x multiple.

"i i think 2025 demonstrated that the economy could grow even when we have a labor market that's not growing much at all and that can only happen if productivity is booming and productivity growth during the first half of the decade kind of recovered it was really quite depressed at the beginning of the decade it's recovered to kind of its annual average of about 2 2 i think we're heading to 3 and going from 2 to 3 doesn't seem like a lot but it is a lot when it comes to real gdp and keeping a lid on inflation"

Ed Yardeni highlights that economic growth in 2025 occurred despite a stagnant labor market, indicating booming productivity. Yardeni explains that this productivity growth, recovering from earlier lows to an average of 2.2% and potentially heading towards 3%, is crucial for real GDP expansion and inflation control.

"i i'm in the notion that it's time to to rebalance them i mean when you've got information technology and communication services accounting for 45 of the market cap of the s p 500 maybe it's time to rebalance a bit and i i've been recommending also overweighting financials and and industrials and now i would continue to overweight them and put some money also on an overweight basis into healthcare"

Ed Yardeni suggests rebalancing investment portfolios due to the significant market capitalization of information technology and communication services within the S&P 500. Yardeni recommends overweighting sectors such as financials, industrials, and healthcare as part of this rebalancing strategy.

"i i am kind of keyed on the impressive 493 everybody's focusing on the magnificent seven but i don't know about you i'm getting ai fatigue i'm a little tired of the whole uh the whole thesis here and i think the market's starting to show that as well and the 493 are looking more interesting because they'll be the ones that are using the technology to increase productivity at earnings"

Ed Yardeni expresses fatigue with the dominant "Magnificent Seven" and AI narrative, suggesting the broader market of the "493" (referring to the remaining S&P 500 companies) is becoming more interesting. Yardeni believes these other companies will leverage technology to drive productivity and earnings growth.

"the us posture again is being clarified as interest driven statecraft we're interested in stopping drugs migration adversary exclusion from oil democracy restoration is being positioned as a downstream objective now let's put this in the context of the venezuelans they've just seen an extraordinary display of us power they cannot compete with us they have no allies of any consequence so they're going to try to do several things first they need to buy time they need to sustain internal cohesion they need to de legitimize any potential successor and they need to then think about how do they manage this environment while congress the rest of the world puts themselves together against the trump administration and then seek out maybe overtures for negotiated coexistence with the trump administration if only to prevent follow on strikes and then maximize their influence in any possible ongoing transition"

Norman Roule explains that the US posture is driven by interests such as stopping drugs, migration, and adversary exclusion from oil, with democracy restoration as a secondary goal. Roule analyzes that Venezuela, facing overwhelming US power and lacking allies, will focus on buying time, maintaining internal cohesion, discrediting potential successors, and seeking negotiated coexistence to manage the situation and prevent further strikes.

"well i think if iran doesn't agree to halt its missile capabilities its reconstitution its nuclear capabilities and if we even see this continued unrest i think there will be and we told clients a 70 probability of another wave of at least israeli strikes on iran perhaps supported or joined by the united states where it's a solid 70 on that also sanctions tighter sanctions we've let iran off trump could go to china and say cut it out we're serious do business with iran or do business the united states so really cutting into their oil exports at least and military action at best 70 probability in the coming let's say months"

Bob McNally assesses a 70% probability of further Israeli strikes on Iran, potentially with US support, if Iran fails to halt its missile and nuclear capabilities or if unrest continues. McNally also anticipates tighter sanctions on Iran, including pressure on China to cease doing business with Iran, which would significantly impact their oil exports.

"well i think we need to first put that in a little bit of perspective in 2025 all the 10 year yields around the developed world were either unchanged or higher the only one that was lower was the us all the 30 year yields not every country has a 30 year were unchanged to higher including the us so there was only one long term yield around the world that went down last year and that was the us 10 year yield so something specific to the 10 year yield happened last year"

Jim Bianco provides context for US Treasury yields in 2025, noting that while most developed world 10-year and 30-year yields were unchanged or higher, the US 10-year yield was the only long-term yield globally to decrease. Bianco suggests that a specific factor influenced the US 10-year yield, distinguishing it from other global markets.

"i am because that specific maturity was the only one that was down now if we had a bunch of them down on yield like the us was down 40 basis points in the 10 year then i would argue to you that you know it wasn't but there was something specific about that maturity and i don't think that that can last forever it did last for 2025 so really it's going to come down to what is the economics of 2026 now if it looks like 2025 where we had strong growth we had a 4 3 gdp in the third quarter the last number we had we had inflation it