Yardeni warns ‘too many bulls’ put stocks on cusp of a pullback

Investors’ seemingly unshakeable faith that stocks can only go higher has one of Wall Street’s biggest optimists growing concerned that all the good vibes are waving a contrarian red flag.

“There are too many bulls,” says perma-bull Ed Yardeni of eponymous firm Yardeni Research, after a torrid six-month advance that defied virtually every warning. With investors largely shrugging off Federal Reserve Chair Jerome Powell’s cautious stance on the odds of another rate cut in December, Yardeni’s now questioning his call for a year-end rally.

The S&P 500 Index has soared 37% since early April, a feat topped in just five other instances since 1950, according to data compiled by Bloomberg. It’s now November — historically the best month for returns over the past three decades. Yardeni predicts the S&P 500 could fall as much as 5% from its peak by late December as sentiment and technical indicators are looking stretched. 

“The crucial question is whether this rally has already gotten ahead of itself, and if it can continue in the final months of the year,” Yardeni said by phone. “Just one unexpected event could knock stocks down from their highs amid poor market breadth, but that may be tough to do, given that traders are usually optimistic around the holidays.”

By one measure, investors are the most bullish in a year. A ratio of bulls to bears identified in an Investors Intelligence survey of newsletter writers for the week through Oct. 29, jumped to 4.27 — topping the 4.00 threshold that historically signals sentiment is getting too enthusiastic, Yardeni Research’s analysis shows. Another signal of elevated optimism was evident in a weekly survey of retail investors by the American Association of Individual Investors, where bullish sentiment topped its historical average of 37.5% for the fifth time in seven weeks.

His caution is notable because Yardeni has been among Wall Street’s staunchest bulls since the market bottomed in April, with his 2025 year-end S&P 500 target of 7,000 — roughly 2.3% above Friday’s close — close to the highest of more than two dozen strategists’ projections compiled by Bloomberg. The 500-member index rose 0.3% to 6,860.32 at 12:58 p.m. in New York. 

After the S&P 500’s roughly $17 trillion rebound, key market technicals are nearing historic extremes, with the S&P 500 trading as much as 13% above its 200-day moving average, a wide spread that traditionally suggests a rally has gotten overextended, he says. The Nasdaq 100 Index trades 17% above its long-term support level — hovering near the widest spread since July 2024, right before stocks sold off on the yen carry trade that rattled markets that August.

Of course, sentiment can stay frothy for weeks — even months — before stocks suffer a significant drop, notes another well-known bull, Tom Lee, head of research at Fundstrat Global Advisors. He is buying any dips, given November’s strong track record for equity bulls.

“While there may be some understandable chop, to digest the strong gains of October, we expect November to be an up month,” Lee told clients in a note on Friday. This is “still the most hated rally.” 

The S&P 500 has climbed 16% in 2025. Historically, when the index advances at least 10% the first 10 months of the year, it bodes well for stock returns the remainder of the year, with the benchmark posting a median gain of 4.2% in November and December, according to data going back to the 1920s compiled by Jay Kaeppel, senior research analyst at SentimentTrader. The worst performance? A 3.8% decline in November and December of 1938.

It all raises the stakes for investors as 2025 draws to a close, as traders bet on a quicker pace of easing than the central bank has signaled. That puts added focus on roughly a dozen central bank officials speaking this week, including New York Fed President John Williams and Governors Chris Waller and Michelle Bowman. Any roadmap they provide for when officials will next lower rates will be closely scrutinized. 

It’s also a busy week on the economic front with Wall Street parsing US factory activity and manufacturing data to gauge the health of the economy, even though traders are unlikely to receive the monthly jobs report this Friday due to a government shutdown.

Results from McDonald’s Corp., fast-food rival Yum! Brands Inc., Uber Technologies Inc. and Lyft Inc. this will also help Wall Street gauge consumer sentiment. More than half of S&P 500 companies have reported quarterly results, and the gauge is on track for a ninth-straight quarter of growth, with profits estimated to climb by 13% — nearly double the roughly 7% preseason estimate, according to data compiled by Bloomberg Intelligence.

“Buy the dips if you have cash,” Yardeni said. “But don’t play games and sell anticipating a major drawdown. I don’t see a major correction coming for the stock market beyond 10% anytime soon.”

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