'None and done' is what we'll see from Fed this year, says Ed Yardeni

Summary

• Ed Yardeni's base case is that the Fed is "one and done" for the year, holding rates steady.
• He believes the economy is remarkably resilient but is being stress-tested again by the war in the Middle East and rising oil prices.
• While recession risks are increasing, he thinks the economy will weather the storm and avoid a recession.
• He characterizes the Fed as being "between Iran and a hard place," uncertain and unable to act, citing Powell's frequent use of "we don't know."
• His investment advice in this uncertain environment is to "stay put" and not try to game the market, though panic is a possibility depending on geopolitical developments.
• He notes the historical precedent of the 1970s, where oil shocks led to a "dead decade" for stocks, creating a risk of "twin peak" inflation similar to 2022.
• However, he sees a key difference now: the resilience of the consumer, economy, and capital spending, alongside energy being a lower percentage of GDP input cost than ever.
• A major supporting factor for the market is that industry analysts continue to raise earnings expectations, even amidst geopolitical tension.
• Specifically, analysts keep raising estimates for the technology sector, which has helped offset a drawdown in the Magnificent Seven stocks.
• The valuation multiple for the market (including Mag-7) has compressed from ~22 to ~20, a decline that would have been worse without rising earnings estimates.
• He does not see a direct connection between the Mag-7 drawdown and the Middle East war, attributing competition within the group instead to an "AI arms race."