The stock market is on pace for its worst October since the financial crisis.
But the Federal Reserve can reverse the damage by stepping away from its current interest rate hike policy, according to veteran investment strategist Ed Yardeni.
“We need the Fed to pause here and just take a breather,” the Yardeni Research President said Friday on CNBC’s “Trading Nation. “Let’s see how the economy plays out, and that will help the stock market a lot.”
His thoughts came as the market took investors on a volatile ride. The S&P 500 dropped almost 4 percent last week. In October alone, the index is off 8.5 percent. Meanwhile, the Dow is down more than 6 percent for the month.
Yardeni, who ran investment strategy for Prudential and Deutsche Bank, is not letting the market turmoil derail his long-term bull case for stocks. He sees strong economic fundamentals supporting earnings growth through next year.
“I don’t expect a recession any time soon,” Yardeni added.
He suggests an overzealous Fed may be the main source of Wall Street anxiety right now. There’s a belief that the Fed may raise interest rates too aggressively and seriously disrupt the economy and markets.
“Fed officials have been talking like mission accomplished — that it’s the best economy that we’ve ever had,” he said. “If it’s the best economy that we ever had, why raise interest rates? Why not leave it be if it’s growing with low inflation?”
Regardless of what the Fed ends up doing, Yardeni predicts the outcome of the Nov. 6 midterm elections will take some uncertainty out of the market. He also believes a strong holiday season will inject some cheer into the market.
“I think it’s going to be the best retail season we’ve ever had. Consumers are really in very good shape,” Yardeni said. “That should help to turn the market around.”