Ed Yardeni Slashes Year-End S&P 500 Target Amid Downturn Risks: 'Proceed With Caution'

Ed Yardeni, President of Yardeni Research, has revised his year-end S&P 500 target downwards, cautioning investors to be wary in the face of increasing rates.

The veteran investor cut his S&P 500 year-end target from 8,400 to 7,900, CNBC reported on Wednesday. This updated prediction indicates a 4.61% rise from Wednesday’s closing figure of 7,551.81.

In August, Yardeni had raised his year-end S&P 500 target to 8,400 and increased the probability of a continued "Roaring 2020s" to 80%, citing stronger earnings momentum.

The Wall Street veteran pointed out that the likelihood of a downturn has grown over the next three to six months, attributing this to elevated Treasury yields resulting from soaring energy prices.

10-year Treasury yields hit a 2007 high of 5.041% this week, while Brent and WTI crude prices rose over 20% in a month to above $100 a barrel.

However, Yardeni maintains a positive outlook on the long-term performance of stocks. He reaffirmed his end-of-decade target of 10,000 for the S&P 500, which is 32% above the present levels. Nevertheless, Yardeni currently advises investors to “proceed with caution.”

Yardeni And Schiff Differ On Yields

Earlier this week, Yardeni stated that he is "not terribly alarmed" by yields approaching 5%, describing the move as "a vote of confidence in the economy" and a sign that growth can withstand, and potentially justify, higher borrowing costs.

Yardeni said his concern would rise if yields surged toward 6%. In that scenario, Yardeni expects Treasury Secretary Scott Bessent could "pull out a bazooka" by shifting new debt issuance toward short-term bills and away from longer-term bonds to ease pressure on the market, a strategy former Treasury Secretary Janet Yellen used in 2023.

Economist Peter Schiff took a more cautious view, warning, "Don’t be fooled into thinking this is the top," and arguing that 5% could be "more likely just a launching pad to 6% and beyond."

AI Bubble Risks Meet Fed Rate Hike

Capital Economics says the AI boom may be nearing the late stages of a bubble, with the firm expecting it to start bursting in 2027. It projects the S&P 500 at 6,500 by the end of 2027, down from 8,250 at the end of 2026, with a potential peak-to-trough decline of at least 30%.

At the same time, Jeremy Siegel, chief economist at WisdomTree, expects the Fed rate hike to trigger an initial stock market sell-off, followed by a recovery if bond markets respond positively and reinforce confidence in the Fed’s inflation-fighting credibility. On Wednesday, the Fed raised interest rates by 25 basis points to 3.75%-4%, marking its first hike since 2023.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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