Market 'melt-up' could push stocks to new records, including an S&P 500 rally of 8% – CNBC

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Veteran market watcher Edward Yardeni believes investors who succumb to stock market jitters could miss out on another wave of big gains.

Yardeni noted the most recent record highs for the Dow Jones, Nasdaq and S&P 500 indices aren’t being driven by a surge in valuation multiples. Rather he says the activity is “more like a melt-up in earnings.” And, that’s a bullish sign for the rally.

“The fundamentals are just cranking along at a decent pace here. Earnings are doing remarkably well given that the economic data looks kind of slow. But somehow or another, companies are generating good revenues and good earnings. I think that’s because the global economy is doing reasonably well,” said Yardeni of Yardeni Research recently on CNBC’s “Futures Now.”

He has been miles away from the bear camp since March 2009, turning bullish a few days after the S&P 500 hit an intraday low of 666 on March 6.

Most recently, Yardeni has been arguing that some of the best bull markets have “climbed a wall of worry,” and this situation is no different.

Yardeni, along with his colleague Joe Abbott, have been keeping track of the number of “panic attacks” in the S&P 500 since the beginning of the bull market more than eight years ago. And, he’s up to 56.

“We’re already at my target. At the end of last year, I talked about 2400 to 2500 by the end of this year which was a pretty bold forecast at the time. Here we are coming down on 2500,” said Yardeni. “I think by the middle of next year we’ll be looking at 2600-2700.”

If he’s right, that range would be a five to nine percent increase for the S&P 500’s current levels.

But, it’s a viewpoint that’s not shared by other esteemed financial market veterans.

Nobel laureate and Yale University Economics Professor Robert Shiller told CNBC last week that he will “lie awake worrying” about the stock market.

“We have seen phenomenal earnings growth right now. Analysts are forecasting a continuation of that. So, I don’t know what is driving earnings,” said Shiller. “I would be skeptical that they would continue at such a blistering pace. History shows that big earnings increases like this have a tendency to revert to trend.”

Yet, Yardeni is holding firm with his forecast and doesn’t see much derailing the rally – not even a White House failure to pass a tax reform package.

“The markets have pretty much discounted that we don’t want to bet too much on Washington providing us with more stimulus or tax reform,” Yardeni said. “The market is doing well on its own just on the fundamentals. So, I’m not convinced that if we get more evidence that nothing is going to happen on the tax front that the market is going to go down.”