Ed Yardeni is president of Yardeni Research Inc., a provider of independent investment strategy research and data. He has worked as chief investment strategist at Deutsche Bank, Prudential Equity Group and Oak Associates. Yardeni has also served as chief economist for C.J. Lawrence, Prudential Securities and E.F. Hutton.  

His resume also includes working as an economist with the Federal Reserve Bank of New York. He also held positions at the Federal Reserve Board of Governors and the U.S. Treasury Department.

IndexUniverse.com's Murray Coleman caught up with the market-oriented economist and investment analyst Thursday afternoon to find out his take on macrotrends going forward.

IndexUniverse.com: Does this rally have legs?

Ed Yardeni: I think it does. It has already traveled a fair distance. I think 1,000 on the S&P 500 is likely. We're probably going to take out the Jan. 6 high for the year fairly soon, which was 934.70.

IU: Do you see more bumps in the road?

Yardeni: Yes, but they're the same bumps we've seen in the bear market. The banking system still has its issues, as evidenced by the most recent stress test given by the government. And unemployment is still a concern. But there's a sense that these problems might not stop the economy from recovering after all.

IU: Do you see a pullback coming, though?

Yardeni: I don't try to be a technician. But sure, there could be a pullback. Remember, though, that we're coming back from a huge fall. What is encouraging is that stock prices in many industries are gaining back their losses from the September 2008 levels. That's when Lehman and AIG really hit the fan and panic took over.

IU: What sectors seem the best-positioned at this point?

Yardeni: Being defensive doesn't make much sense with a global recovery in sight. So I think materials and industrials should do well. The price of oil has done well recently. It should continue to rise. In the next six-to-12 months, prices could get up into the $75-$80-per-barrel range. The metals and mining as well as specialty chemicals also look attractive now. Diversified chemicals still appear rather sluggish and I don't see a lot of upside in that industry.

IU: Do you think gold has more room to run?

Yardeni: Not necessarily. Gold and the trade-weighted U.S. dollar have been flight-to-safety plays. We've seen more interest in risk-taking lately. If that continues to be the case, the trade-weighted dollar and gold may go nowhere fast. I'm not enthusiastic about either one at this point.

IU: How about emerging markets?

Yardeni: They've had a great run and I think they'll continue to outperform from here. We started to see at the beginning of this decade a great global boom. That was interrupted by the credit crisis, but it looks like global growth might be resuming again. China, India and Brazil look best at this point. Asia will be the region that really leads the global economy out of this recession, more so than the U.S., Japan or Europe.

IU: How do you see Europe?

Yardeni: It's going to be a slow-growth story. They don't have much going on over there in terms of domestic demand. The demographics are against them with an aging population. And on the whole, they tend to have a more conservative consumer base. Other than in Spain, the U.K. and a scattering of other countries, Europe hasn't seen the kind of housing boom in recent years as the U.S. underwent this decade. Eastern Europe seems to continue to be mired in some of the credit excesses they've been through in recent years.

IU: What do you see taking place in those markets where housing did spurt before the credit crisis?

Yardeni: Now that we've seen the housing bubble burst, economies that used to have very active real estate markets—such as Spain, the U.K. and Ireland—are going to slow even more.

IU: Which markets appear in relatively better shape in Europe?

Yardeni: France and Germany have been heavily reliant on exports. But they should show better strength than other European countries because a global recovery will provide a lift to their exporting capabilities. That should put them in a better relative position than Spain, Ireland and the U.K.

IU: What sort of chance to do you see for a turnaround in Japan?

Yardeni: Not much. The main hope for Japan is strong growth in China. They've got one of the worst demographic situations of any industrialized economy. And they don't have any real serious domestic demand. They're working on their second lost decade. Japan stands to lose much of its economic influence in the next decade.

IU: What about the U.S.?

Yardeni: This is going to be the first global recovery not led by the U.S. Our economy will recover, but it will be lackluster and take some time to complete. The good news is that the U.S. remains a very dynamic economy. We've still got plenty of entrepreneurs who are going to make money, even with the government playing a larger role in the private sector. But even once employment growth builds, we still could be looking at a recovery of about half the strength of what we've seen in the past.

IU: What other types of investments are you recommending to institutional investors these days?

Yardeni: Corporate bonds, junk bonds and leveraged loans all look interesting. If you can get involved in funds that invest in companies benefitting from TALF [Term Asset-Backed Securities Loan Facility], those would seem to be an attractive way to invest right now. That's assuming you think that we're on a course heading towards a global recovery. I certainly do, which makes me believe that some sectors considered at the moment to be more risky look very attractively priced. This would seem to be a good time to take advantage of some of those opportunities.