This Should Be A Market Collapse… Why Isn’t It? | Ed Yardeni
TL;DR
Despite heightened geopolitical tensions including a US naval blockade of Iran, markets have shown remarkable resilience with Ed Yardeni maintaining his S&P 500 target of 7,700 and lowering recession odds to 20%, arguing the modern economy can absorb oil prices up to $125 per barrel without significant damage.
🌍 Geopolitics & Market Resilience 3 insights
Markets stable despite Iran blockade
Investors view the April 13 naval blockade as a temporary disruption, with markets remaining stable because they anticipate oil will eventually flow and commodities will reach global markets.
March 30 marked the S&P 500 bottom
Yardeni maintains that March 30 represented the market low, with the subsequent rebound triggered by signals of a short conflict duration and policy responses to extreme bearish sentiment.
Historical crises create buying opportunities
Citing the market bottom after Midway in WWII despite years of war remaining, Yardeni argues markets discount geopolitical shocks early and recover before conflicts resolve.
🛢️ Oil Shock Scenarios & Inflation 3 insights
Three-stage oil price framework
Yardeni outlines scenarios where $100-125 triggers inflation fears and Fed hawkishness, $125-150 sparks growth fears, and $150+ causes demand destruction requiring dovish policy.
Economy handles $100 oil better than 1970s
The modern US economy is less energy-intensive and more services-based, allowing it to absorb current oil prices without the stagflationary shocks seen during the 1970s oil crises.
Tariffs stalled disinflation at 3%
Trump's tariffs prevented CPI from falling to the Fed's 2% target by pushing durable goods prices positive, though they did not cause overall inflation to spike higher.
📈 Earnings & Recession Outlook 3 insights
Maintains 7,700 S&P target
Yardeni sticks to his year-end target based on $310/share earnings for 2025 and $350 for 2026, noting that industry analysts are even more bullish at $320 and $370 respectively.
Recession probability lowered to 20%
Reduced from 35% due to resilient first-quarter earnings expected up 12% and Trump's indication of a two-to-three-week conflict timeline limiting sustained economic damage.
Corporate earnings diverge from small business sentiment
While NFIB small business optimism has declined, Yardeni prioritizes actual hiring data over sentiment surveys, noting corporations continue reporting strong earnings and expansion plans.
Bottom Line
Treat geopolitical volatility as a buying opportunity and maintain equity exposure, as the economy can withstand oil prices up to $125 without recession while earnings remain resilient.
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