Economist Ed Yardeni believes the Dow Jones Industrial Average could surge to 31,500 by the end of next year or even sooner.
But his bullish call isn't based squarely on economic fundamentals, CNN.com explained. Instead, Yardeni “believes it's all about President Donald Trump's evolving trade war giving the Federal Reserve no choice but to reintroduce easy money,” CNN explained.
"Trump has figured out the perfect way to force the Fed to lower interest rates. All he has to do is keep creating uncertainty about U.S. trade policy," the president of investment advisory Yardeni Research wrote in a recent note to clients.
Since a sharp fall in May, Wall Street’s main indexes have been trending higher to hit record highs on hopes of interest rate cuts by the Federal Reserve.
The Dow Jones Industrial Average fell 14.72 points, or 0.05%, at the open Wednesday to trade at 27,320.91, Reuters said.
Federal Reserve Chair Jerome Powell reiterated a pledge to “act as appropriate” to keep the U.S. economy humming in a speech on Tuesday that validated expectations that an interest rate cut is on the way, Reuters reported.
Many Fed officials said at their most recent meeting that their concern over a U.S. trade war and weak inflation “strengthens the case” for “somewhat more” stimulus, Powell said.
Markets regard a rate cut as a certainty after policymakers’ July 30-31 meeting.
Yardeni, also a Newsmax Finance Insider. suggested that Trump could keep trade negotiations open and continue to alternate his message about how those talks are going.
"The more uncertainty, the better to get the Fed to lower interest rates," Yardeni said.
And then Trump could declare victory in the global trade war later this year or early next, lifting stocks further, CNN reported.
Under that scenario, Yardeni anticipates the S&P 500 will cruise to 3,500 by the end of 2020 — or sooner. That roughly translates to 31,500 on the Dow. The S&P 500 opened higher by 1.06 points, or 0.04%, at 3,005.10.
"It's all about winning a second term and playing Powell to do so," Yardeni wrote.
Powell said the economy continues to turn in “solid” growth that is helping keep a “strong labor market” on track and support a bounce-back in consumer spending.
But he emphasized inflation short of the Fed’s 2% annual target and a basket of “uncertainties” making it harder to be confident in a still-rosy outlook. Beyond an unresolved U.S.-China trade clash, Powell cited a global growth slowdown, U.S. debt ceiling negotiations and Britain’s chaotic exit from the European Union.
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