MW A stock market melt-up may be the biggest risk facing investors, says this strategist

By Barbara Kollmeyer

A fresh high logged by the S&P 500 last week, with another possibly in the cards for Monday, suggests stocks may be back in melt-up mode.

That's according to Yardeni Research's president Ed Yardeni, who also has some caution to share: "It's a bit hard to believe, but the main risk at this time may be a stock market melt-up, i.e., a speculative bubble. That's where we were only 41/2 months ago when the latest correction started!"

President President Trump's tax-and-spending bill faces a July 4 deadline in the Senate, and his 90-day tariff pause on many nations expires July 9. A shortened holiday week will also bring jobs data Thursday.

Read: A 2-month rally pushed the stock market to record highs - but watch for these risks in July

The S&P 500 SPX rose 3.44% last week to 6,173.07, its all-time high reached Friday, and is up 10% this quarter, the biggest quarterly gain since the first quarter of 2024. The index is up 5% as the first half of the year comes to a close.

In a note to clients, Yardeni said that thus far, the bull market looks like a "normal one, with the potential to match the returns of some of the best bull markets since the mid-1960s." He and his team are still targeting 6,500 on the S&P 500 by the end of this year, and 10,000 by the end of the decade.

In the path to another high following the 18.9% February-to-early-April correction, the S&P 500 found support from tariff-deal optimism, commitments by AI companies to spend billions and a record high in forward price-to-earnings estimates, the strategist said.

Those expectations of future company earnings had peaked on April 4 at 22.2, bottomed at 18.1 through April 25, and is now back to 21.9, Yardeni said, adding that much of the S&P 500's correction can be pegged to a decline in P/E estimates. "It has been a P/E-led, V-shaped correction lasting 48 days. That's a relatively normal correction," he said.

Looking forward, the strategist expects second-quarter earnings will beat forecasts, just as was seen in the first quarter, as analysts have stopped lowering those for the rest of the year.

What does Yardeni recommend? He and his team have been overweight or bullish on information technology XLK, communications services XLC, industrials XLI and financials XLF since the start of the bull market in October 2022, and those have been the four best performing sectors since then. Energy XLE was also a recommendation, but he said they've since given up on that sector.

-Barbara Kollmeyer

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June 30, 2025 04:48 ET (08:48 GMT)

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