Yardeni Research’s President and Chief Investment Strategist, Ed Yardeni joined Yahoo Finance Live to break down the state of the market and why investors should be more cautious.
- I want to bring in another guest, Ed Yardeni, president and chief investment strategist at Yardeni Research, because some people may be making a mistake as they go into this market. And the last guest, Ed, talked about what's about to happen with Tesla next week going into the S&P 500. You refer to it as a meltdown in the price of Tesla. Tell us more, as investors, why we need to be very careful right now.
ED YARDENI: Well, I often get asked these days, what would I do right here if I had a lot of cash and I hadn't been in the market. And I don't have an answer. I've been bullish since the beginning of the bull market. And I would just stay with the positions that one might have added in recent years.
But right now, there's just way too much bullishness. Everybody's bullish. And we have signs of speculative excess with Tesla and with some of these IPOs. So I think you want to be a little bit careful.
We already had our Santa Claus rally. It just happened in November. Maybe we'll get two this year. Maybe we'll get another one before the end of this year in December.
But I think at this point, don't speculate too much. Just stick with quality names, broaden out. I agree with your previous guest, who said that the market is broadening out from the-- I call it the magnificent five. Adds Tesla, that's the magnificent six.
The outlook is actually pretty good for next year once we get through this pandemic, once a lot of us get inoculated. We should see the economy doing very well in the second half of next year going into 2022. That's what the market's been discounting. The market does look forward. And it's actually done a very good job of anticipating a V-shaped recovery in the economy so far.
But the economy is slowing because of the third wave of the pandemic. And you have to factor all that in when you're managing a portfolio these days.
- So, Ed, with all of that in mind, I know you're saying to broaden out right now. It's not just going to be those five or six stocks here that had been leading the way over the last eight or nine months. More specifically though, what do you like in this type of environment because there's still so much uncertainty out there?
ED YARDENI: Well, you know, they say the market doesn't like uncertainty. But as you know, we've had a lot of uncertainty since the pandemic hit. We didn't know whether we'd have vaccines. We didn't know how long the pandemic would last. We didn't know how the economy would respond. And yet here we are with the stock market at record high territory.
And I think it does have to do quite a bit with what the Fed has done. The Fed has provided a tremendous amount of liquidity. The Fed is doing its best to make bonds very uninteresting.
And I've been looking at the Fed's purchases. And the Fed's has been doing a lot of purchases in the long end of the marketplace, notes and bonds, buying them faster than the Treasury has been issuing them. But they've been keeping the bond yield the, 10-year bond yield, below 1%.
And as you know, a lot of other yields are at record lows. So there are probably some yield opportunities still in the corporate bond market. But at this point, I think the issue really is stocks versus bonds. And it certainly looks to me as though stocks should be overweighted.
Maybe what's really changed in the stock market, really since November, is we have had talk about vaccines and we're actually seeing distribution of vaccines. The market is broadening out. Anticipate a broader economic recovery in the second half of next year. And so that-- yeah, go ahead.
- You know, a lot of what we keep hearing, and you actually allude to this, is the old phrase, "irrational exuberance." And then here's an example. All of us can name people who've lost money with cryptocurrencies. And yet we look at Bitcoin over $20,000 a coin. What is that telling you?
Well, I tell everybody, don't come to me for advice on Bitcoin. I'm an old-fashioned kind of guy. I like dividends, I like earnings, I like coupons, I like rent. I like streams of income that I can put some value on.
Bitcoin, you really almost have to look at the charts. It's the crowd. It's whatever the crowd thinks Bitcoin should be worth, that's what it's going to be worth. I look at the chart and I see it retesting its previous highs, making maybe new highs here. And that's the kind of chart that the most technicians say, you may actually want to short or at least lighten up on your positions.
But I'm certainly not astute enough in understanding what drives the crowd in thinking about Bitcoin. So at this point, I would actually rather go for silver and gold investments than Bitcoin. Because I've got more familiarity with what the supply and demand is there than what's going on with Bitcoin. So Bitcoin, you're kind of on your own. Though, at these levels, I'd rather buy stocks that have underperformed.