Despite policy volatility, strong profits continue to boost US markets: Ed Yardeni

Now that the 43-day government shutdown is over, market experts remain cautious about what lies ahead. Ed Yardeni of Yardeni Research thinks the turbulence in Washington will continue to fuel uncertainty, but investors have learned to live with it.“Washington remains a source of volatility and uncertainty. Policymaking has certainly been like this all year and yet the stock market has learned to deal with it well,” Yardeni said in an interview with ET Now.

“That’s largely because the earnings environment has been remarkably strong. The growth rate has been almost twice as fast as initially thought, and that’s really what’s driving the U.S. stock market higher. Earnings have soared to record highs.”Despite persistent policy uncertainty, Yardeni remains optimistic about the resilience of the US economy.

“Over the past three years we have had the most anticipated recession that never happened,” he noted. “The economy has shown its resilience in the face of very significant shocks, and here we are now with real GDP at an all-time high. My bet is on continued resilience.”

He pointed out that while the government shutdown could dampen fourth-quarter data somewhat, consumer spending and tech-led capital investment are likely to remain robust. On the issue of tariffs and the realignment of global trade, Yardeni believes the world is already in transition. “I don’t think it will be status quo anytime soon. Many of our trading partners are trying to find more reliable partners and diversify markets,” he explained. “For example, Canada and India have had some unhappy relationships that now seem to be mending as Canadians want to do more business in India. And certainly, countries and companies want to diversify so they don’t become overly dependent on China.”

Yardeni also highlighted ongoing concerns about China’s control over rare earth supplies, suggesting that developments over the past year have sparked a global search for alternative sources.

Looking ahead to January, he expects new political drama in Washington.

“January could be quite interesting because this deal between the Democrats and the Republicans is very short-lived,” he said. “The Supreme Court is also expected to rule on rates, and that could have a major impact. I think the president will find that the Supreme Court will very likely rule against him, which could impact the bond market.”
Despite the looming policy battle, Yardeni doubts whether a new shutdown is on the horizon.

“The government would like to avoid another shutdown. The Democrats have also been burned by this. They are not going to play nice, but they are not going to close the government again,” he concluded.

As Washington braces for a new round of budget and political clashes, Yardeni’s view underlines a key takeaway: Strong corporate earnings and resilient consumer activity continue to offset policy-induced volatility, keeping markets buoyant despite the noise from Capitol Hill.