Ed Yardeni Is Getting Nervous About the Speed of S&P 500's Rally

But the valuations remain relatively tame viewed against the bubble era of the late 1990s.

If they were to reach only half of the peak multiples of the seven largest tech stocks of that time, today's so-called Magnificent Seven would have to rise by 55% each, according to a recent analysis by Bank of America Corp. strategists including Benjamin Bowler. That'd translate to a 15% gain for the S&P 500, all else equal.

Fueling the market's latest leg up has been optimism over potential Federal Reserve interest-rate cuts and a rebound in corporate earnings. The Nasdaq 100 climbed 1% Wednesday as Netflix Inc. shares soared on better-than-expected subscriber numbers.

Bolstered by frenzy over artificial intelligence, shares of the seven largest tech stocks have doubled in the past year. Firms like Apple and Microsoft, which are slated to report quarterly earnings in coming weeks, are projected to announce blockbuster results.

Thanks to their dominant position in everything from e-commerce to clouding and electronics, big seven's profits probably expanded at a median pace of 39%, analyst estimates compiled by Bloomberg show. That compared with marginal growth predicted for all companies in the S&P 500.

"I wouldn't say it's getting bubbly, but it's getting stretched," said Yung-Yu Ma, chief investment officer for BMO Wealth Management. "The question as the year goes on is, are companies able to meet the high expectations that are being priced in?"

With a prevailing lack of enthusiasm among Wall Street prognosticators, it didn't take much for stocks to exceed their target. Their projection made in December calls for the S&P 500 to rise 1.3% in 2024. That's the least bullish year-ahead view since Bloomberg began tracking the data in 1999.

The reservation reflects flaring geopolitical tensions globally and the potential risk of an economic downturn after the Fed's most aggressive rate hikes in decades. Yet the market has once again proved its ability to overcome headwinds.

The resilience is a reminder of the danger of being left behind. Last year, when the S&P 500 also managed to surpass Wall Street's forecast by January, strategists initially held firm to their outlook only to find themselves scrambling to play catch-up as the market kept running higher.

Hedge funds, which trimmed their long positions in tech megacaps between mid-August and December, are returning to the group as the industry has restored leadership in the new year, according to data compiled by Morgan Stanley's prime broker. Separate client data from JPMorgan Chase & Co. showed a similar pattern.

"What we saw in AI over the past few weeks lends credence to the adage that if you aren't long, you're short," Ron Adler, JPMorgan's head of U.S. cash equity trading, wrote in a note to clients earlier this week. "The move in the market remains bolstered by a blend of euphoria and FOMO."

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