This Should Be A Market Collapse… Why Isn’t It? | Ed Yardeni

In 2023, when bond yields reached 5%, individuals like Bill Ackman and bond traders closed their short positions, taking profits because they felt 5% yields offered sufficient compensation, demonstrating resistance to further yield increases.

“But then just as I uh was getting too concerned uh the bond deal started coming down rather sharply at 5%. It was on November 1st. Uh Bill Aman said that he covered his brilliant short position in the bond market. He said you know he'd made enough money there and he didn't want to play anymore.”

India and Indian investors have traditionally been consistent buyers of gold and silver, representing a structural source of gold demand independent of geopolitical shocks.

“there's n natural buyers in India. There's they've always been uh buyers of gold and and silver.”

There remains a 'safe haven bid' for bonds as volatile investors rebalance into longer-dated securities, knowing they will receive a fixed return if held to maturity, which provides technical support for bond prices despite elevated inflation concerns.

“there's still a safe haven uh uh bid for uh for bonds. People are buying bonds because they feel uh in a volatile world uh if they just hold them for 10 years, they know exactly what what they're going to get. Uh and some people may may prefer that.”

There is potential for alternative supply routes (pipeline from Saudi Arabia to Red Sea, tanker traffic to US Gulf and Venezuela) to bypass the Iranian blockade, suggesting oil will find its way to markets despite the blockade.

“there is a pipeline from Saudi Arabia to the Red Red Sea and uh and uh you know t if if uh if some of the stories that I'm reading uh on the internet and the president's proclaiming that uh tankers are coming to the US Gulf and to Venezuela, um we we could really have a pretty significant increase in business for the American oil industry.”

Janet Yellen signaled in 2023 that the Treasury would issue more short-term bills and reduce additional long-term bond issuance, effectively responding to bond vigilante pressure by shifting the funding mix away from stressed segments of the yield curve.

“more importantly, uh, the Treasury Secretary Janet Yalen basically announced that she was going to issue more in bills and not increase the issuance of bonds. She basically told the bond vigilantes, "Okay, I get it. I'm not going to stress you out by issuing more additional bonds. I'm going in T-Bill market."”

Shadow fleets have already been operating through the Strait of Hormuz to bypass existing sanctions, so the blockade announcement represents a visible escalation of enforcement rather than a new constraint on oil flows.

“we know that there was already shadow fleets going through but now a blockade is going to basically limit that going into Asia right”

Inflation had come down substantially from its 2022 peak to around 3% before the war, but this 3% level is still 1 full percentage point above the Fed's 2% target, and Trump's tariffs did not directly raise inflation but prevented the decline to 2% that would have otherwise occurred.

“I think overall, you could say that inflation had come down substantially from its peak in 2022. Uh but um overall consumer price inflation measures seem to have stalled out coming down and settled around 3% which is full percentage points more than the Fed is targeting. And I think a lot of that had to do with Trump's tariffs. Trump's tariffs didn't raise inflation uh but they kept it from coming down to 2%. I think we would have been down to 2% by now. uh where Trump's tariffs had a big impact was on durable goods prices.”

Companies reported 'really great' fourth quarter earnings and are expected to deliver positive first quarter results, indicating that the war has not yet impacted reported corporate performance.

“the companies are reporting they reported really great uh fourth quarter earnings and looks like uh first quarter earnings are going to be up at least 12%.”

Trump's tariffs had a particularly large impact on durable goods prices, which had been negative on a year-over-year basis but have now turned positive due to the tariff effect.

“where Trump's tariffs had a big impact was on durable goods prices. Uh that's uh those prices uh had been negative on a year-over-year. Now they're they're positive.”

Producer Price Index (PPI) will be released on Tuesday (April 15) and will be an important indicator of the extent to which the Iran war and oil shock in March affected upstream inflation.

“Well, it's actually a light week for for data, but uh the producer price index uh comes out on Tuesday and that'll be another kind of indicator of the extent to which um the war in March affected inflation in March and in the PPI. Uh so clearly the energy components are going to be up a lot and uh transportation uh inflation will also be up a lot.”

Turkey sold a significant amount of gold in April 2025 in an effort to support its currency as the Iran war created downward pressure on emerging market currencies, explaining why gold prices declined despite the inflationary and geopolitical backdrop.

“Yeah, I I was kind of scratching my head and wondering, you know, you have the you have the war, you have inflation as a result of the war, you have uh, you know, more bigger deficits as a result of the war, more pressure to increase defense spending, and gold goes down. Um, and apparently the story is that uh the war put a lot of downward pressure on the currencies of some emerging markets, particularly Turkey. And apparently Turkey sold a lot of gold in an effort to prop up um the country's currency.”

Yardeni reduced his recession odds from 35% to 20% in April 2025 based on extreme bearishness readings (bull-bear ratio approaching 1), contrarian signal of policy response, Trump's stated 2-3 week exit timeline, and the unlikelihood of oil spiking above $125-150 in the near term.

“Yeah. Uh yeah, by by then it uh was uh pretty clear that So again, we we thought the market made its low on uh March 3rd. We said that uh sorry, March 30th. uh we said that uh on the next day on Tuesday, we said it Tuesday night after the market had that initial uh big surge and we said that that's that's an important chart right there that uh that's the con that that's the bull bear ratio that we're we we give a lot of weight to and uh we saw that uh the bearishness really had mounted and from a contrarian perspective so much bearishness with a bull bear ratio down close to one We concluded that there would probably be a policy response when when people get uh extremely bearish. The policy makers one way the other get the message and the policy response uh that uh developed of course was uh uh this the ceasefire uh we kind of moved to in that direction at the at the time.”

Gold is historically inversely correlated with the S&P 500 and has the same uptrend, making it an effective portfolio diversifier that can benefit from rebalancing gains if stocks reach 10,000 by 2029.

“It it has historically been inversely correlated with the S&P 500. Uh but it's also had the same trend. So, if my base case scenario of getting to 10,000 on the S&P 500 by the end of the decade, by the end of 2029 works out, I think the price of gold could get to 10,000 on rebalancing uh people making so much money in the stock market that they want to rebalance into gold and into bonds for example.”

Trump is using simultaneous messaging—threatening Iran with military destruction to coerce cooperation while signaling exit intent to markets to prevent panic, demonstrating a deliberate two-track communication strategy.

“He's clearly trying to convince the Iranians that uh he'll blast them to smitherines if they don't cooperate. and then when the markets don't cooperate with what he's doing, he tones it down and then the market rallies on that.”

The current inflationary background in 2025 is less elevated than in 2022 (no residual monetary excess, lower baseline inflation), so the oil-shock inflation spike may be more modest and shorter-lived than the 2022 episode.

“uh we we don't have the uh the inflationary background that we had in 2022. So maybe this one will be a more modest uh shorter uh lived uh inflation spike.”

Chinese investors remain significant buyers of gold because they have suffered major losses in real-estate investments and negative returns in the Chinese stock market, making gold an attractive diversifier.

“I think Chinese investors are still likely to be buyers because they've gotten killed in their investments in real estate. They've gotten whipsaw in the Chinese stock market. Chinese stock market is great for trading, but it's not for investors. It just goes nowhere fast uh with a lot of volatility.”

Tech and communication services stocks reached 46% of S&P 500 market capitalization, a level so concentrated that Yardeni felt uncomfortable recommending overweight allocation despite the sectors containing great companies.

“with regards to tech and communication services, they got to 46% of the market capitalization of the S&P 500. And I I just felt kind of uncomfortable telling people to overweight uh two sectors that already represented 46% of the S&P 500. If you just market weighted them, you at 46%. And to tell people to overweight them was just uh I I thought it just didn't make sense that two sectors uh would just continue to gobble up uh market cap weight uu and earning share.”

Companies demonstrate a rapid ability to pass through cost increases, as evidenced in 2022, and may repeat this performance in 2025 if inflation pressure persists, which could create a short-term inflation problem more quickly than consensus expects.

“companies learn how to pass through price costs so quickly in 2022 they could probably do it again. And maybe that'll be the shocker is how quickly inflation does pass through uh and create creates a at least a short-term problem.”

The NFIB small business optimism index measures a somewhat ambiguous construct—it is unclear whether the survey asks about optimism regarding the respondent's specific business or about the broader business environment, which could explain divergence from larger corporate earnings optimism.

“optimism is u a kind of a ambiguous idea. You know, are you optimistic or pessimistic? And uh uh I I don't know if they're asking them are you optimistic or pessimistic about your specific business or the business environment.”

Yardeni's three-stage oil-shock framework is not an econometric model with precise thresholds but rather a descriptive heuristic for how bond markets respond to oil price levels: Stage 1 ($100-$125): inflation fears dominate, Fed turns hawkish; Stage 2 ($125-$150): growth fears emerge; Stage 3 ($150+): real demand destruction, Fed turns dovish.

“Well, look, I I I don't think it's a framework. It's really kind of descriptive of the the shape of the yield curve, how the bond market is responding to oil prices. Uh it's uh it's kind of hypothetical, right? I don't really have any hard evidence or an econometric model, which I don't view as hard to explain, you know, is it exactly 125 that things start to come unglued.”

Yardeni believes inflation will be 'stickier' than markets are currently pricing and expressed surprise that the 10-year bond yield has not risen more than it has, suggesting he expects further yield increases.

“I think that uh the uh the inflation uh picture I think is widely anticipated to be dare I use that word transitory. Uh I think inflation is going to be a little stickier than the markets are thinking. I'm kind of surprised that the bond yield has hasn't gone up more but I think it still could.”

Bond vigilantes are active in the two-year note market (which saw a 50 basis point rise in one month), but 'two-year notes are not bonds' and the true bond vigilantes (longer-term) 'seem to be asleep at the switch' in the U.S., whereas they are active in Japan and the UK.

“Well, they are in the two-year notes, but two-year notes are not bonds. And the bond vigilantes seem to be actually kind of asleep at the switch. Uh if you want to see where bond vigilantes are are working hard to push yields up, it's clearly in Japan. uh it's been in the UK. Uh but uh here in the US uh the bond market's been real quiet.”

Yardeni is personally experiencing the divergence between geopolitical pessimism and business performance: he admits to being 'kind of leaning towards pessimistic' about geopolitical conditions but notes that his own business is 'great' and he is actively hiring.

“you know if you ask me about things I might say well you know I I used to be more optimistic now I'm kind of kind of leaning towards pessimistic. I don't like what I'm seeing geopolitically but how's your business? Oh it's great you know and I'm actually hiring some people”

Yardeni chose equities over bonds for 2025 when directly asked about overweight positioning for the year.

“So, if you had to be overwway bonds or equities this year, which would it be equities”

Yardeni maintains his year-end 2025 S&P 500 target of 7,700 based on $310 earnings per share this year, while noting that industry analysts have become more bullish, now forecasting $320 EPS for 2025 and $370 for 2026, despite the Iran war.

“Yeah, actually um uh it's based on uh earnings uh this year being $310 a share for the S&P 500 and $350 a share uh next year. And uh I am amazed to see that the industry analysts are even more optimistic than I thought I was. Uh they're looking not for 310 that right now they're looking for 320 this year and they're not looking for 350 next year. They're looking for 370.”

The market was broadening out from Magnificent 7 concentration to S&P 493 stocks, and also going increasingly global, suggesting a healthy rotation away from concentration risk.

“the market was was broadening out to the S&P 493 and uh it was going increasingly global. Actually I was late on the go global call. It was already uh happening last year, but it took me a while to kind of change my mind on that.”