Yardeni Says Only a Lehman-Style Crash Could Justify Current Market Gloom
U.S. stocks are sliding after the long holiday weekend, with fresh trade tensions centered on China and growing unease over Fed Chair Jerome Powell’s job security pushing the dollar lower. Add to that a heavy slate of earnings this week, and investors could be in for a bumpy ride.
Amid the negativity, Ed Yardeni, president of Yardeni Research, suggests the prevailing market pessimism might be overdone. In fact, he argues that bearish sentiment is so extreme, it might actually be bullish.
“To match the current doom-and-gloom tone, we’d need a meltdown on the scale of the 2008 Lehman Brothers collapse,” Yardeni said. “And there’s no solid evidence that something of that magnitude is brewing.”
That said, Yardeni isn’t ignoring the risks. Like many strategists and major banks, he’s grown more cautious this year, slashing his S&P 500 target twice—from 7,000 to 6,000—amid rising fears that former President Donald Trump’s tariff plans could push the U.S. into recession. The S&P 500 is down 10% in 2025.
Still, Yardeni sees glimmers of hope. Recent signals that China may be willing to negotiate with the U.S. could give Trump a reason to scale back his proposed 145% tariffs—potentially easing investor anxiety.
But risks remain. Yardeni cited prediction market Polymarket.com, where recession odds have surged to 56%—up from just 20% in January. He puts the probability of stagflation or a recession at 45%.
Investor sentiment is cratering. Bull/bear indicators from Investors Intelligence and the American Association of Individual Investors (AAII) show optimism collapsing from late-2024 levels. One consumer survey revealed that 44.5% expect stock prices to fall over the next year. “It looks less like market efficiency and more like a heart monitor for a patient in trouble,” Yardeni quipped.
Confidence among younger investors is especially shaky. Just 31.8% of those under 40 expect stock prices to rise over the next year, compared to 35% of those aged 40–60, with the average expectation of a market gain at just 33.8%.
Despite all this, Yardeni warns against giving up on 2025 too soon. “If our instincts are right and early signs of recovery emerge, dismissing this year as a total write-off could prove costly,” he said.
Echoing this sentiment, Evercore ISI strategists led by Julian Emanuel argue that markets might be overly pessimistic. “With a 90-day window for trade talks, small caps could see upside on even the slightest positive news,” they wrote, noting that gold appears to be the default safe haven.
To capitalize on this dynamic, Evercore suggests an options strategy on the iShares Russell 2000 ETF (IWM): buy a call with a $204 strike to profit from upside, and a put with a $170 strike for downside protection. This straddle strategy allows investors to gain if volatility spikes either way.
For gold, Evercore proposes two plays: short the SPDR Gold Shares ETF (GLD), or use a collar strategy—selling a call at a $323 strike and buying a put at $297 to hedge against potential losses.
