Surging rates won’t hurt rally, thanks to ‘extraordinary’ earnings impact from Trump tax cuts, says Ed Yardeni

Even though the 10-Year Treasury yield is trading around the highest level since April 2014, Wall Street veteran Edward Yardeni doesn't see it hurting the stock market rally.

The Yardeni Research president said the "nirvana scenario" will stick around this year.

"Tax reform is just having an extraordinary impact on earnings. Analysts since the tax package was enacted have raised their earnings by $7 a share for this year," Yardeni said Wednesday on CNBC's "Trading Nation." "We've been reading some of these conference calls the companies had, and it almost seems like they want to pinch themselves. They can't believe how great it is for their business."

Yardeni, who predicts the S&P 500 will be 9 percent higher by year's end, believes tax reform removed virtually all the risk in the markets — particularly the one associated with rising Treasury yields.

"There's talk that if we just go over 3 percent on the 10-year that may unnerve the market. I don't think so," he said. "Seeing the bond yield go up here would just confirm that the economy is doing well — that we're finally seeing self-sustaining growth."

The 10-year's yield was at 2.75 percent on Thursday morning.

According to Yardeni, tax reform is aiding an already robust economy and contributing to strong earnings growth.

"The Fed can raise interest rates some more, and that's actually a healthy thing," Yardeni added.

His latest thoughts came shortly after Fed Chair Janet Yellen's final Federal Reserve meeting on interest rates before her successor Jerome Powell takes over. The Fed kept rates unchanged and reiterated that it expects to gradually raise rates.

"I don't think this is the top. The top will be made when it's pretty clear that we're pulling into a recession, and we're nowhere close to that," Yardeni said. "It's kind of like Santa Claus is still here."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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