Yardeni Research: "Possibility of 'Flash Crash' Due to Trump Tariff Confusion"

Like 1962 and 1987, Possibility of Sharp Plunge Followed by Rapid Rebound

"Market Volatility in First Half, Sharp Rebound in Second Half" Forecast

"Worth Betting on U.S. Economic Resilience and Profitability"

Ed Yardeni, head of Yardeni Research and one of Wall Street's biggest bulls, mentioned that Trump's tariff confusion could trigger a 'flash crash' even without a recession. A 'flash crash' refers to a stock market experiencing a sharp plunge followed by a rapid rebound. In the U.S. market, 1962 and 1987 are cited as notable examples of flash crashes.

According to MarketWatch on the 10th (local time), Ed Yardeni had predicted that the S&P 500 would close at 7,000 points by year-end but has recently turned more cautious. In a memo sent to clients the previous day, he wrote, "We cannot rule out the possibility that a downturn began on February 20th, the day after the S&P 500 hit an all-time high."

He also added, "I wonder if Trump's tariff confusion 2.0 could trigger a flash crash without accompanying a recession." He explained that a 'flash crash,' like the examples from 1962 and 1987, involves a sharp decline followed by an equally rapid reversal. Yardeni said, "So when selling occurs, there are buying opportunities in less overvalued stocks."

Yardeni pointed out that Trump's confusion is putting the market and economy through a stress test. As a result, he has raised his assessment of the possibility of the U.S. economy entering a recession and stocks entering a bear market from 20% over the past three years to 35% recently.

He still said, "I'm betting on the resilience of American consumers and the U.S. economy." However, he noted that "Trump's confusion 2.0 is significantly testing these two resiliences." He added that expectations of stagflation are also increasing in the market.

Yardeni predicted that the U.S. stock market would fluctuate in the first half of this year and rise to record levels in the second half. However, he also saw a 65% chance that the bull market would continue into 2025 without corrections or downturns. Previously, he had estimated this probability at 80%.

In the long term, he said he still believes there is a 55% probability that his forecast of a "golden 2020s" with U.S. stocks continuing their strength into the 2030s will materialize. This is supported by a resilient economy and technology-driven productivity. However, this is only possible if trade wars do not worsen.

Yardeni also said he no longer relies on the Federal Reserve's "put" (the Fed rushing to rescue the stock market when needed). Last week, Chairman Jerome Powell indicated that the Fed would not rush to cut interest rates.

He added that stock market bulls should "bet on the resilience and earnings of the U.S. economy," saying, "I still think that's a good bet."

Regarding the possibility of stock buying opportunities beginning to emerge, Yardeni cited data from Michael Brush, publisher of the stock newsletter Brush Up on Stocks. According to this data, insiders are buying stocks in cyclical sectors including energy, technology, banking, industrials, and biotechnology.

Kim Jung-a, Contributing Writer kja@hankyung.com