Podcast Summary: Excess Returns

Episode: He Was Overweight Tech for 15 Years. He Just Downgraded the Mag Seven | Ed Yardeni Explains Why

Date: December 11, 2025
Guest: Ed Yardeni
Hosts: Jack Forehand, Justin Carbonneau, Matt Zeigler

Episode Overview

In this episode of Excess Returns, Ed Yardeni, a long-time market strategist known for his bullish "Roaring 2020s" thesis, joins the hosts to discuss why he recently moved from an overweight to a market weight on the "Magnificent Seven" (Mag 7) tech stocks after more than a decade of tech-sector outperformance. Yardeni explores the implications of AI-driven productivity, the risks of excessive market concentration, global diversification, the resilience of the U.S. economy, and his ongoing process of scenario-based market forecasting. The discussion also examines current macroeconomic risks, Federal Reserve actions, and the potential for market broadening in 2026.

Key Discussion Points & Insights

1. Scenario-Based Forecasting and "Roaring 2020s" Thesis

• Why Ed Uses Probability Scenarios (03:48–05:21):

  • Yardeni prefers a probability-based approach over firm predictions. He assigns a 60% chance to his base case of a continued bull market, a 20% chance to a "melt up–meltdown" scenario, and 20% to riskier negative outcomes.
  • Quote:

    "Right now I'm assigning it a 60% probability ... And then a 20% probability that this gets a little bit ahead ... becomes irrationally exuberant and we get a melt up, meltdown ... And then that leaves me with 20% for everything that could possibly go wrong."
    — Ed Yardeni (04:12)

• The "Roaring 2020s" Thesis (05:21–07:19):

  • Since 2020, Yardeni has forecasted a surprisingly resilient U.S. economic expansion despite multiple major shocks.
  • The "no-show recession" since the pandemic reinforces his view of U.S. resilience.

2. Downgrading the Mag 7 & Market Concentration

• Rationale for Moving from Overweight to Market Weight (07:59–13:15):

  • After outsized returns, tech and communication services now represent 45% of S&P 500 market cap, posing concentration risks.
  • Quote:

    "If I kept telling people to overweight information technology and communication services, I'm telling them to have more than 45% of the portfolio in just two sectors. And it just seemed to me that, you know, at some point you have to kind of declare mission accomplished and do some rebalancing ..."
    — Ed Yardeni (08:29)

  • With Mag 7 still near 30% of S&P 500, Yardeni advocates for prudent rebalancing into financials, industrials, and now healthcare.

• Diversification Matters (12:11–13:15):

  • Emphasis on traditional diversification as concentration grows riskier.
  • Recognizes real-world frictions such as taxes for investors lightening up on big tech.

• Global Overweight U.S. Is Stretched (13:32–15:44):

  • U.S. now 65% of MSCI World market cap—may be time to diversify internationally after benefiting from "stay home" since 2010.

3. Competition & Structural Tech Shifts

• Competitive Pressures Among Tech Giants (15:55–19:45):

  • The tech sector is hyper-competitive: as soon as one company pulls ahead (e.g., OpenAI, then Google with Gemini 3, then Deep Seek), another leapfrogs.
  • Quote:

    "It's the only industry that literally eats its young ... just as they're introducing [a new chip], they're already scrambling to create the next version ... Competition suggests that the profit margin ... may come under pressure."
    — Ed Yardeni (16:33)

• Capex Boom & Reinvestment (20:30–21:14):

  • Tech companies are increasingly asset-intensive, spending more on data centers and talent.
  • Cites Michael Burry's concerns about accounting for chip depreciation.

• Valuation Concerns, but Not the Sole Reason (21:14–22:27):

  • Mag 7's forward P/E near 30, justified by growth—but higher capex and talent costs could moderate earnings growth.
  • Present environment is far from the dotcom bubble: revenue and earnings are real and robust.

4. AI as Economic Evolution, Not Just Hype

• AI's Role in Corporate America (24:39–25:37):

  • Expecting AI-driven productivity to extend beyond tech giants to average businesses.

• Is AI the Next Big Thing? (25:37–29:26):

  • Yardeni frames AI as an evolutionary step in the digital revolution—comparable to shifts from mainframes to PCs to the cloud—with AI as a "super duper app."
  • Quote:

    "AI to me, is just a super duper app ... applicable across all sorts of business models, much more so than Word and Excel ever were. So I think this is all evolutionary."
    — Ed Yardeni (27:32)

• AI Infrastructure Challenges (29:26–30:04):

  • Power constraints are a hurdle, but technological innovation often surprises (e.g., data centers in space).

5. AI & Economy-Wide Productivity, Labor, and Inflation

• AI Offsetting Labor Shortages (30:04–30:50):

  • With retiring baby boomers, only productivity (including AI) can fill labor force gaps.

• Labor Market Disruption & Adaptation (30:50–31:53):

  • AI temporarily depresses new graduate prospects, but Yardeni is optimistic about worker adaptation and new business creation.

• AI as a Deflationary Force (31:53–33:12):

  • Technology is inherently deflationary as it drives costs down and spurs competitive pricing—also visible globally (e.g., China's exports).

6. Market Outlook, Risks, and the Fed

• Market Outlook to 2029 (33:25–35:22):

  • Forecasts S&P 500 at 10,000 by 2029 (based on $500/share earnings, 20x multiple), and 7,700 for 2026.
  • Economy's resilience explained by "rolling recessions" in sectors, not overall contractions.

• Why Recession Indicators Failed (36:24–39:36):

  • Blames faulty leading indicators and changes in the financial system; banks are stronger, and capital markets now "whack a mole" risks.
  • Quote:

    "The index of leading ... economic indicators should just ... need a recall. I mean, it's a defective product. It just doesn't work ... been telling us a recession's coming since late 2021 ... And it's just been wrong."
    — Ed Yardeni (36:40)

  • Normalization, not true tightening, explains why higher rates didn’t cause a slump.

• The Dynamics of Private Credit & Future Risk (40:49–41:04):

  • Growth of private credit/debt markets provides stability but also opacity and potential hidden risks ("20% scenario").

7. Broadening Market Leadership in 2026?

• Potential for Broader Market Gains (42:18–43:42):
  • Predicts 2026 could see midcaps, small caps, financials, healthcare, and international stocks begin to outperform, benefiting from easier rates and global diversification.

8. Fed Policy, Independence, and Political Climate

• Fed Actions & Quantitative Easing (43:42–44:59):

  • Latest rate cut plus technical reserve moves; no surprises or promises for more easing.
  • Market read the Fed as dovish, but Ed is skeptical.

• Fed Independence Under Political Pressure (45:01–49:14):

  • Trump’s criticisms and calls for a 50bps cut are noted.
  • Yardeni remains in the "don’t cut" camp, though he admits being wrong so far.
  • More dissent within the Federal Open Market Committee may paradoxically increase institutional independence, regardless of political appointees.
  • Quote:

    "If by some miracle ... the Fed lowered interest rates in line with what Trump wants. Beware of what you wish for, my friends with bond vigilantes would go the exact other way."
    — Ed Yardeni (47:29)

9. Global Diversification—Notable Regions & Approach

• Practical Diversification (49:43–51:04):
  • Yardeni doesn't pick specific countries but advocates for ETF-based exposure (both passive and actively-managed), with attention to performance leaders like Spain and Poland.
  • Talking to financial advisors and using managed international products is prudent.

Notable Quotes & Memorable Moments

• On Knowing When to Lighten Up: (13:32)
  "I feel like starting to sing Kenny Rogers, you know, hold it. Hold them or fold them. And that's really the question that investors have to ask themselves, look at your portfolio and are you comfortable with the mix?" — Ed Yardeni

• On Tech Sector Competition: (19:45)
  "It's either a horse race or it's a frog race. I mean, they are, they are, they are kind of leaping over each other... Another analogy is Game of Thrones, right? It's like we got seven, seven kingdoms ... now the moats are no longer as effective as they're realizing that they're actually starting to compete with one another." — Ed Yardeni

• On Economic Resilience: (05:43)
  "We've had the most widely anticipated recession of all times that didn't happen. It's been the no show recession or the Godot recession." — Ed Yardeni

Timestamps for Important Segments

• [03:48] — Probability-based scenario forecasting
• [05:21] — Defense of "Roaring 2020s" thesis
• [07:59] — Shift from tech overweight to market weight
• [13:32] — How to recognize when to "fold" a successful thesis
• [15:55] — Why market weight for Mag 7 and broader tech sector now
• [16:33] — Hyper-competition, profit margin risks in tech
• [24:39] — AI’s diffusion beyond tech giants
• [27:32] — Digital revolution as a context for AI
• [30:16] — AI’s economic impact and productivity
• [31:53] — AI as deflationary force
• [33:25] — S&P 500 and earnings forecasts to 2030
• [36:40] — Why recession indicators failed
• [39:46] — Sectoral "rolling recessions" vs. economy-wide slumps
• [42:35] — Potential for market leadership broadening in 2026
• [43:55] — Fed actions and what surprised the market
• [46:43] — Fed independence and political pressures
• [49:43] — International diversification strategy

Summary Table: Ed Yardeni’s Main Allocations View

| Asset Class / Sector | Stance | Rationale | |---------------------------|-------------------|------------------------------------------------------------------| | Tech & Communication | Market weight | Excessive concentration, prudent rebalancing advised | | Mag 7 | Market weight | Similar, plus rising competitive/capex pressures | | Financials & Industrials | Overweight | See more upside, benefit from productivity/digitalization trends | | Healthcare | Now overweight | Laggard with upside, poised for productivity gains | | Int’l/EM Equities | Diversify/Overweight | U.S. dominance stretched, global opportunities rising | | U.S. overall | Still positive | Economic resilience, productivity tailwinds |

Closing Notes

Ed Yardeni remains constructive on U.S. equities, continues to expect robust economic performance, and sees hot competition and productivity gains as key drivers. However, after a historic run for big tech, he advocates rebalancing, increased diversification—both sectorally and globally—and a healthy skepticism regarding consensus recession indicators.

For in-depth research, daily briefs, and Yardeni’s market charts, Ed can be found at yourdaddy.com.