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The Fed's 'QE4ever' stimulus will push stocks to record highs in 2021, says one of Wall Street's biggest bulls

Ed Yardeni, president of Yardeni Research Inc, speaks at the Reuters Global Investment Summit in New York November 19, 2015. REUTERS/Brendan McDermid

  • Amid "just horrible" economic data, the Federal Reserve's latest bout of quantitative easing is setting up a strong backstop for the stock market, long-time bull Ed Yardeni told CNBC's "Trading Nation" on Friday.
  • Yardeni Research sees the S&P 500 remaining near 2,900 by the end of the year before rocketing to a record 3,500 by the end of 2021.
  • The central bank's "QE4ever" policy has no end date or limit, Yardeni said, and "very much reduces the likelihood" of stocks returning to late-March lows.
  • Investors should look to the timing of economic reopenings, he added, as a shutdown lasting through the summer threatens to punt a stock market rebound past 2021.
  • Visit the Business Insider homepage for more stories.

Even as economic data "will continue to be just horrible," the stock market will lean on Federal Reserve policy to surge through 2021, Ed Yardeni, president of Yardeni Research, said Friday.

The central bank announced it would begin buying bonds on March 23, alleviating credit health stresses and signaling to investors the authority would do everything in its power to avoid a complete market collapse. The date also marked the stock market's lowest level before rebounding from bearish territory amid the coronavirus threat.

The Fed's policy, deemed "QE4ever" by Yardeni, could last for several more months as the outbreak lingers, he said on CNBC's "Trading Nation." Keeping such a backstop in place quashes risk of a second market slump even if economic data comes in worse than expected, Yardeni added.

"They didn't put any end date on it. They didn't put any limit on it," he said. "If we have another opportunity for any downside, I think you'll see more rebalancing which very much reduces the likelihood that we'll be able to get back to the March 23 lows."

Read more: Goldman Sachs outlines a 3-part investing strategy to profit from the economy's reopening — including 4 stocks to buy for the recovery

Yardeni Research sees the S&P 500 index remaining near 2,900 through the rest of the year, struggling to break through the threshold as economies grapple with the remainder of the coronavirus' economic fallout. A reopening late in 2020 would give way to strong gains and push the index to a record 3,500 by the end of 2021, the long-time bull said.

With the Fed's stimulus providing an indirect floor to equities, the economic reboot's timing is the most important factor for reaching new highs next year, Yardeni added. Keeping the US locked down through the summer would delay a market upswing and cut even further into the economy already marred by mass unemployment and plunging demand.

Read more: RBC: The world's biggest investors are piling into these 11 high-growth stocks to stay ahead of a market hammered by coronavirus fears

The next few weeks are critical to deciding whether the stock market can enjoy a quick recovery or sit stuck at its current levels for years, the analyst said.

"I would get very concerned if we keep this thing locked down past May," Yardeni said. "We wouldn't even be talking about a 'U'-recovery. Something more like an 'L', and I certainly wouldn't want to see that."

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