US Economy Faces 'Fork In The Road': Is Yardeni's 'Roaring 2020s' Still Possible?

The U.S. economy stands at a critical juncture. Mounting recession fears are colliding with the possibility of a technology-fueled productivity boom that could reshape the decade and power the stock market to new heights.

In a note shared Monday, Ed Yardeni, one of Wall Street's most enduring bulls, said the U.S. economy faces "a fork in the road." The Yardeni Research president gives a 65% probability of a so-called Roaring 2020s scenario and a 35% chance of a more stagnant, stagflationary outcome, including a recession.

"We've decided to fold our 1990s meltup/meltdown scenario into our Roaring 2020s scenario," Yardeni said.

"The current correction in the stock market suggests that the former has played out already, as the bull market's highflyers have been hit hardest."

What's Behind The Current Market Correction?

Markets have clearly been rattled. The S&P 500 index — as tracked by the SPDR S&P 500 ETF Trust SPY — has declined 10.1% from its Feb. 19 peak through Mar. 13, while the Nasdaq 100, tracked by the Invesco QQQ Trust, Series 1 QQQ, has slid 11.8% since its Dec. 16 high.

“The Magnificent-7 stocks led the recent rout,” Yardeni said.

The Roundhill Magnificent Seven ETF MAGS—tracking the elite group of tech giants like Microsoft Corp. MSFT, Apple Inc. AAPL, NVIDIA Corp. NVDA, Alphabet Inc. GOOG GOOGL, Amazon Inc. AMZN, Meta Platforms Inc. META and Tesla, Inc. TSLA —has dropped 18.8% from its Dec. 17 peak.

This contrasts with the Defiance Large Cap ex-Mag 7 ETF EXMAGS, often referred to as the "S&P 493," which is down just 6% since mid-February. The sharper decline in tech mega caps signals that the stock market correction is concentrated among prior highflyers.

These types of corrections—defined as 10%-20% pullbacks—typically reflect rising fears of an economic downturn.

Yet Yardeni stressed that forward earnings for the S&P 500 continue to hit record highs, suggesting that Wall Street analysts remain more optimistic than investors. That divergence, he said, can be attributed to analysts being closely tied to corporate guidance, which often downplays macro fears.

Two-Sided Outlook: Stagflation Or Productivity Boom?

Yardeni raised his recession probability to 35% earlier this month, attributing the increase to a "Trump Turmoil 2.0" characterized by tariff threats and political instability. Yet, his base case remains anchored in optimism.

In his Roaring 2020s scenario, Yardeni sees real GDP growth fueled by a 2% annual increase in productivity and labor force growth of 0.5%-1%, supporting potential economic expansion of 2.5%-3% annually.

That would keep inflation in check, lift profit margins, boost wages and purchasing power, and ultimately push the S&P 500 to 10,000 by the decade’s end.

"This includes the possibility of a rebound in the former highflyers," Yardeni said, suggesting tech stocks could still have room to run once market jitters subside.

What The Fed And Markets Are Pricing In

The Federal Reserve's March dot plot revealed that policymakers are still anticipating two rate cuts in 2024, followed by two in 2025 and one more in 2027.

The longer-run federal funds rate remains anchored at 3%. These projections, along with the downgrade in real GDP forecasts to 1.7% for 2025, reflect the Fed's view of a soft landing. They also acknowledge the economic drags coming from tighter fiscal policy and potential trade disruptions.

Fed officials trimmed their real GDP growth expectations across the board:

from 2.1% to 1.7% for 2025
from 2.0% to 1.8% for 2026, and
from 1.9% to 1.8% for 2027.

The Fed also raised its inflation forecast for core personal consumption expenditures, the central bank's preferred inflation gauge, to 2.8% for year-end 2024, up from 2.5% in December.

Kalshi, a prediction market regulated by the Commodity Futures Trading Commission, shows a 40% probability of a U.S. recession in 2025. That’s slightly higher than Yardeni's 35% estimate. These odds have ticked higher recently, mirroring growing concern over macro headwinds and geopolitical noise.

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