Ed Yardeni, President and Chief Investment Strategist of Yardeni Research Inc., has lowered his year-end S&P 500 Index target to 7,900 from 8,400. This adjustment comes just a month after he had raised his forecast, citing heightened risks of an economic downturn over the coming three to six months. The previous target of 8,400 was considered the highest estimate on Wall Street last month.
The rationale behind this reduction stems from several factors. Yardeni noted a decrease in his estimate for the forward price-to-earnings (P/E) ratio of the S&P 500 at year-end, moving it from 19.8 to 18.6. This change is primarily attributed to a recent backup in bond yields. Despite the near-term caution, Yardeni maintains his optimistic long-term view, keeping his decade-end target for the S&P 500 at 10,000 and shifting his 8,400 target to mid-2027. He also anticipates that the economy will grow without a recession through the end of the decade.
Several concerns contribute to Yardeni's revised outlook. The re-escalation of the war in the Middle East has pushed oil prices above $100 a barrel, raising fears that sustained high oil prices could lead to further bond yield increases and potentially trigger additional Federal Reserve rate hikes. The U.S. 10-year Treasury bond yield is nearing 5.00%, a level Yardeni considers abnormal and concerning. Additionally, the upcoming midterm elections in November introduce uncertainty, with the potential for a shift in congressional control.
The Federal Reserve recently concluded its meeting, announcing a quarter-point rate hike, placing the federal funds rate between 3.75% and 4%. Yardeni had previously suggested a July rate hike might have helped lower the 10-year yield by boosting the Fed's inflation-fighting credibility. The current S&P 500 index level is approximately 7,610.53, implying a roughly 4.1% upside to Yardeni's new year-end target. Yardeni is the second strategist this week to cut his view, following Ohsung Kwon of Wells Fargo & Co. who lowered his target to 7,700 from 7,950.
