Ed Yardeni says war-related geopolitics and higher energy costs have raised recession odds from 20% to 35%, but he still sees a base-case ‘Roaring 2020s’ backdrop supported by productivity, earnings resilience, and a strong economy. He’s more cautious on inflation and portfolios now, yet still prefers staying invested with a mix of equities, bonds, and gold.
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In this Wealthion interview, Ed Yardeni, president and chief investment strategist at Yardeni Research, says he has raised his subjective probability of ‘things going wrong’ from 20% to 35%, explicitly including recession, market correction, and even a bear market. The main reason is the Iran/Middle East war and the geopolitical fog around it, which he thinks could create an inflation shock through oil, gas, fertilizer, and other supply-chain disruptions. The conversation starts with inflation, after a hotter-than-expected producer price report. Yardeni says the current setup feels somewhat reminiscent of the 1970s—two energy shocks, twin inflation peaks, and eventual stagflation—but argues there are important differences today. He emphasizes stronger productivity, stronger U.S. energy independence, and better economic resilience than in the 1970s. …
Near term, the market is vulnerable to a war-driven inflation shock, especially through oil and food inputs, while the Fed’s easing path looks less immediate. Tactical risk is a correction or sector rotation rather than an outright collapse unless the shock persists.
Over the coming weeks and months, the base case is that the economy and earnings absorb the current disruption, but confirmation is needed from oil, analyst EPS revisions, and labor-market data. If inflation stays elevated and earnings estimates start falling, the setup can shift quickly toward recession pricing.
The structural view remains constructive: higher productivity and U.S. economic resilience support a secular bull case even with periodic geopolitical shocks. The lasting regime implication is that portfolios likely need both equity exposure and real-asset diversification, especially gold, to navigate a wealthier but more unstable world.
Yardeni raised his subjective probability of things going wrong from 20% to 35%, explicitly including recession, correction, and bear market risk.
He directly states the probability change and names the downside scenarios.
The Iran/Middle East war and geopolitical fog can create inflation and market risk.
He links war uncertainty directly to macro downside.
The current inflation scare resembles the 1970s in some ways, but important differences make a repeat less likely.
He explicitly compares the period to the 1970s and then argues for key differences.
Do we have a structural inflation problem?
Ed Yardeni says he's not sure if it's structural but it's starting to feel a bit like it, with a sense of deja vu from the 1970s when energy shocks led to twin peaks in inflation and stagflation. However, he notes important differences: productivity is strong today (unlike the 1970s when it collapsed) and the US is now an energy exporter rather than dependent on foreign oil. He leans toward it not being structural and has been talking about a 'roaring 2020s' scenario where productivity boosts growth and keeps inflation down, though the war has forced him to consider a stagflation scenario as a possibility.
Are we facing a recession, especially with higher gas prices hitting people hard?
Yardeni notes that the stock market has held up surprisingly well despite hotter PPI data and diminished odds of Fed rate cuts. He believes markets are discounting that the situation won't last long and that oil is getting out through pipelines, SPR releases, and lifted sanctions on Russian oil. He adds that earnings expectations have actually been raised by analysts, which explains the market's calm, even though there are increasing recession concerns visible in policy markets.
What is driving the resilience in earnings, and are the gains coming from different parts of the economy?
He says the main strength is coming first from information technology and communication services, though the earnings picture is broader than just those sectors. He also points to productivity gains, better company efficiency, strong capital spending, and fiscal stimulus as reasons earnings have held up.
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