Key Highlights
- Market strategist Ed Yardeni lowered his S&P 500 year-end forecast from 8,400 to 7,900 amid surging Treasury yields and escalating geopolitical concerns
- The 10-year Treasury yield touched 5% for the first time since 2007
- Recession probability increased to 30% from 20% for the coming three to six months
- Wells Fargo similarly reduced its S&P 500 projection from 7,950 to 7,700
- Despite near-term concerns, Yardeni maintains his 10,000 target for the S&P 500 by decade’s end
Prominent Wall Street strategist Ed Yardeni revised his S&P 500 year-end projection downward to 7,900 from 8,400 on Tuesday, attributing the adjustment to climbing Treasury yields and intensifying Middle East geopolitical tensions.
While the revised forecast still indicates approximately 4% upside from Tuesday’s closing level of 7,585, it signals a notable retreat from Yardeni’s previously optimistic outlook established mere weeks earlier.
Treasury Yields Prompt Valuation Adjustment
The benchmark 10-year Treasury yield momentarily exceeded 5% on Tuesdayāreaching levels unseen since 2007ābefore settling at 4.995%. Yardeni had previously indicated comfort with yields trading within a 4% to 5% corridor.
With that threshold now under pressure, Yardeni adjusted his forward price-to-earnings multiple for the S&P 500 downward to 18.6 from 19.8, reflecting the higher interest rate environment.
He cautioned that sustained elevation in oil prices could continue applying upward pressure on bond yields. Combined with persistent inflation readings, this dynamic might compel the Federal Reserve to consider additional rate hikes.
Market participants anticipated the Fed would announce a 25-basis-point rate increase Wednesday following its monetary policy deliberations.
Geopolitical Tensions Heighten Market Uncertainty
Yardeni identified the intensifying Middle East situation as a significant factor behind his tempered outlook. Iranian-backed Houthi forces have captured strategic areas in Yemen, including the Red Sea port city of Mokha, creating additional strain on worldwide energy supply chains.
He further observed that Iran’s military strategy appears designed to maintain elevated crude prices approaching U.S. midterm elections through attacks on regional petroleum infrastructure.
Crude oil quotations have climbed following coordinated U.S. and Israeli airstrikes against Iran on February 28, which resulted in the death of Iran’s supreme leader.
During the weekend, Yardeni had already decreased his probability estimate for a “Roaring 2020s” scenario from 80% to 70% while simultaneously elevating his recession likelihood to 30% from 20%.
Wall Street Firms Echo Cautious Sentiment
Wells Fargo contemporaneously reduced its year-end S&P 500 target from 7,950 to 7,700. Analyst Ohsung Kwon explained the firm adopted a more defensive posture entering September, anticipating valuation multiple contraction despite improved earnings projections.
Wells Fargo increased its earnings-per-share estimates to $425 for 2027 and $460 for 2028, yet continues to see constrained upside potential and possible near-term corrections of 5% to 10%.
Yardeni’s former 8,400 target now effectively serves as his mid-2027 projection. His 2027 earnings-per-share estimate remains at $425, exceeding the Street consensus of $419.53.
He preserved his decade-end S&P 500 target of 10,000 and reiterated his expectation for continued U.S. economic expansion without recession through 2030.
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