Yardeni Research President Raises Odds of Stock Market Collapse to 35% Amid Oil Shocks

The president of the sell-side Wall Street firm Yardeni Research believes that tensions in the Middle East are lifting the chances of a stock market meltdown.

In a new Bloomberg interview, Ed Yardeni reiterates his view that the odds of a sharp stock market sell-off have risen to 35% as the Middle East conflict drags on.

According to Yardeni, the stock market has been resilient as of late, as investors continue to pile in to buy the dips. But he warns that rising oil prices have historically preceded recessions and bear markets.

“So I think there’s still a lot of buying on the dips. There’s still a lot of wishful thinking. And I am hopeful that this thing will be done sooner rather than later. But I need to see some evidence that that’s the case. And that just doesn’t seem to be the case. So I think we’re still looking at something like a 10% to 15% correction. A bear market to be 20% or more. And I think we can’t rule that out simply because we have a history where we’ve seen that oil shocks tend to cause recessions, which tend to cause bear markets.

Now, we did have 2022, where we had the bear market, but no recession. So that’s a possible scenario. I don’t think this is going to be the 1970s all over again, but it’s sure starting to look somewhat like it.”

In the 1970s, the US had to increasingly rely on foreign oil supplies after domestic production peaked, ultimately triggering the 1973 oil crisis and the Great Stagflation. At the time, rising oil prices forced companies to cut production and lay off workers as the prices of goods and services soared, leading to a period of high inflation and high unemployment.

At time of writing, the US Crude Oil Spot (WTI) is trading at $92.22 per barrel, up over 42% since the conflict in Iran started. Meanwhile, the S&P 500 (SPX) is valued at 6,775.79, down about 1.59% over the same time frame.

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