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- Longtime bull Ed Yardeni sees the S&P 500 jump 12% to 5,000 by the end of 2022 or before.
- Tech-driven improvement in productivity and fast-rising wages will create 'nirvana', he said.
- Yardeni suggested investors should consider a broad-based basket of stocks.
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Veteran strategist Ed Yardeni predicts the S&P 500 stock index will jump 12% to hit 5,000 by the end of 2022 or sooner, buoyed by wages in the US rising faster than prices – a situation he describes as "nirvana."
The S&P 500 closed at an all-time high of 4,468 on Friday, which marked a 19% increase for this year so far and a 100% spike from the coronavirus-induced market low in mid-March 2020.
"I've got 5,000 on the S&P 500 by the end of next year or earlier," he said, adding that his bullish predictions have been reflected in the market in the past.
Speaking on CNBC, Yardeni pointed to improved worker productivity in the US as a major factor in his view of stocks.
"Labor-force growth has slowed dramatically, and there's a tremendous pressure on companies to use technology to offset that," he said on "Trading Nation" Friday. "That means increasing productivity."
"So I've got this very bullish story for activity that is growing 2% right now. I think it's heading to 4% in the next few years. If that happens, that's nirvana."
Adoption by US companies of innovative technology allows wages to grow faster than prices, the president of Yardeni Research argued. That means margins can stay high, he said, adding that he's counting on this factor because "it's obviously very good for corporate profits."
But productivity rates could still run into trouble as the "disturbing" surge in cases of the Delta coronavirus variant and rising inflation still pose challenges to economic recovery, according to the strategist.
"Inflation has yet to demonstrate as actually transitory," he said. "Right now, there's no evidence that it's peaked. So there are still concerns along those lines."
Still, Yardeni suggested investors should buy "a little bit of everything" and consider a broad-based portfolio of stocks.
"If you want to get more focused, I'd say that where there is value right now is in the small- and mid-cap stocks," he said. "They're extremely cheap on a valuation basis relative to the large caps."