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S&P 500 pulling back from its record today as investors rotate out of tech, but our next guest is still bullish overall, raising his target for the S&P 500 to 5800. And joining us now is Ed Yardeni, Yardeni Research president, Dr. Ed. It is always good to have you on the show. So you raise your target Ed to 5800. How come? Walk us through the reasons.

Well, I I'm becoming increasingly convinced, as the market is, that the Fed is in fact going to start cutting interest rates. As you recall, at the beginning of the year, there was a lot of expectations that there might be six or seven rate cuts, but that never happened. I think this next rate cut that's expected in September is going to happen, and I think over the past couple of days, Fed chair Jerome Powell kind of went out of his way to, you know, hint and wink that uh, if if things keep going well on the inflation side and they continue to be somewhat concerned about what's going on in the labor market side, they're going to lower rates. Uh, and uh, as we saw today, uh, the market uh, as a result, started to broaden out to the Smith cap, to the smaller mid-cap stocks. So, but I think all in all, what I'm looking for is a very strong second quarter earnings season. We're about to get reports tomorrow, we get the banks. I think the banks are going to wind up reducing their loan loss provisions because there is no recession out there, so I think they're going to surprise us to the upside. And then I think a lot of companies that are not technology companies are going to tell us how they're using AI to cut their costs and increase productivity. They're not going to necessarily say it's making a huge change in their earnings outlook, but I think they're going to indicate that it could very well be an important development.

Um, Ed, it's truly here. The conventional wisdom has always been um, that if the Fed was cutting rates, not because there was some sort of, you know, overturning in the economy, but rather to bring us back to normal, that stocks could continue to rally in the face of that. But are there any concerning signs for you? I mean, we are seeing a little bit of deterioration in the labor market. You have some companies today talking about consumer weakness, right? We've had a couple of guests today bring up credit card delinquencies ticking up. How concerned to investors need to be about those various elements?

Well, I think uh, it's important to put it in the context of recent history. We we did have this uh, amazing uh, event, not not a happy one, uh, which is the pandemic, and a lot of things really had some abnormal developments as a result of that, particularly the labor market. And I think what we're seeing is normalization. I think we're getting back to normal in the labor market, and I think we're getting back to normal with with interest rates. We certainly are have gotten back to normal with inflation. So, when I put it all together, I'm not really that concerned about uh, downsides for for the economy. I'm not concerned that inflation is going to remain sticky. Uh, and I think uh, you know, I'm going to listen to what uh, Fed Powell said and that's pretty strongly suggested that they're going to start cutting rates in September. That's all good for the bonds, it's all good for the stocks.

Uh, you know, Ed, when it comes to the stock market skeptics, they'll um, they'll throw their yellow flags, they always do, right? And there's a couple of them here and I want to get your take. You know, they'll they'll talk about, Ed, sentiment. They'll say too many bulls, and they'll also talk about valuation. This market just doesn't look cheap. How do you answer those two?

Well, I look, when when you get too many bulls, you are more vulnerable from a kind of a sentiment perspective to see some sort of correction, because when you have too many bulls, there are just not enough bears to convert over to the bulls and everybody presumably has bought. And if you get some bad news and some of the weak bulls start to panic and and get out. So it's conceivable that there could be a correction in in the works here as a result of sentiment. But on the other hand, I think it's very important to recognize that there's six trillion dollars sitting in money market mutual funds. It's been fairly satisfied earning 5, 5 and a quarter percent on on their money. People in those accounts uh, and I think if they start to perceive that interest rates really are coming down, then you may see more money going into the bond market and into the stock market, offsetting the contrarian perspective that too many bulls is bearish.

Um, I want to ask you as well about the election um, and the sort of lack of reaction there has been uh, in the markets, right? I mean, if you look at the front pages of most of the non-financial papers, they will be focused on what's going on with President Biden and the reelection campaign. Um, when do you think maybe what what would be a trigger for that to change for the markets to start paying more attention?

Well, that's a great question. I don't really have the answer to it, but I I have observed, I think we've all observed and your question implies that the market has done remarkably well despite the political partisanship, besides all the turmoil we see going on in Washington. And I think, I think investors, whether they're conservative or liberal Democrats or Republicans have learned over the years that you don't want to let politics determine your investment approach. Uh, so for example, uh, if you were a big fan of Obama, um, then you probably were long the market then, but if you weren't, you might not have been in the market at all and missed a very good bull market. Same thing happened with Trump uh, and again with Biden. Uh, we've we've had very partisan White Houses where half the country liked the president, half didn't. Uh, and yet the stock market just keeps going up, and I think that speaks to the strength of the economy. It speaks to the fact that, you know, Washington doesn't matter for everything going on in our economy. There's a lot of us working stiffs that are going to the office and to the factory or wherever every single day, working hard trying to make things better. And on balance uh, we we succeed and offset the meddling of Washington.

Ed, you raise your target on the market, I'm just curious which sectors uh, you find attractive here, Ed. What are you telling clients?

Well, I'm I haven't changed much in that score. I'm still talking about technology, financials, industrials, and even energy is a sort of a shock absorber in the event that there is a shock out of the Middle East or Russia-Ukraine that leads to higher oil prices. But generally speaking, uh, growth is still where I want to be.

Ed, thank you so much. Appreciate it.

Thank you.