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Yardeni Lowers S&P 500 Target to 7,900 Despite Maintaining 2027 Earnings Forecast


Stock chart with arrow going down ©Gerd Altmann
Stock chart with arrow going down ©Gerd Altmann

Yardeni Research has revised its S&P 500 year-end forecast to 7,900 from 8,400, reflecting expectations that investor risk aversion will continue to affect equity valuation multiples.

The research firm left its 2027 earnings estimate unchanged at $425 per share, compared with a market consensus of $423.08, while reducing its year-end forward price-to-earnings target from 19.8 to 18.6.

The previous S&P 500 objective of 8,400 had been moved to mid-2027 before the latest revision.

Yardeni continues to forecast that the US economy will avoid recession through 2029, distinguishing its valuation concerns from its expectations for corporate profitability.

Valuation Assumptions Drive Revised Market Forecast

Yardeni said risk-averse market conditions, which emerged in mid-September, are likely to persist and could lead investors to assign lower earnings multiples to equities.

The firm maintained its expectations for corporate earnings but reduced the valuation it expects the market to apply to those profits.

This adjustment resulted in the lower year-end S&P 500 target.

Despite the revised forecast, Yardeni said a recovery towards 7,900 remains possible before the end of the year.

The firm also identified additional potential investment opportunities arising from lower equity valuations.

Semiconductor Losses Lead US Equity Market Declines

The S&P 500 declined 1.1% on Wednesday to close at 7,718.94.

The Nasdaq Composite and Russell 2000 both fell 1.9%, while the SOXX semiconductor exchange-traded fund recorded a 4.5% decline.

Yardeni attributed part of the change in technology-sector sentiment to increasing competition in artificial intelligence and uncertainty surrounding the financial returns on large-scale AI investment.

CoreWeave (NASDAQ:CRWV), a provider of cloud infrastructure for AI applications, recorded a 16% share-price decline amid concerns about its ability to service outstanding debt.

The firm cited these developments in its assessment of market conditions affecting technology-related valuations.

Consumer Inflation Increases 0.6% in September

September’s US consumer price index report showed a 0.6% monthly increase in headline inflation, the largest rise since March.

Energy prices increased 9.3%, accounting for part of the overall monthly advance.

The report prompted a change in market expectations for Federal Reserve interest rates.

The probability assigned to an October rate increase rose from 21% to 36%, after briefly reaching 45%. Market expectations also shifted towards the possibility of two interest rate increases before year-end.

Core inflation increased 0.3% during September.

Yardeni reported that 52% of consumer price index categories were experiencing annual price increases above 3%.

Durable goods prices advanced 0.9%, while computer and electronics prices recorded their highest three-month inflation rate on record.

The firm linked the increase in computer and electronics prices to semiconductor demand associated with artificial intelligence.

Bond Yields and Geopolitical Developments Influence Outlook

Yardeni said the 10-year US Treasury yield appeared to be stabilising, consistent with the firm’s expectations from the preceding weekend.

The research firm pointed to real yields of approximately 2.90% on Treasury Inflation-Protected Securities as a potential factor supporting demand in the bond market.

It also identified several risks that could affect equity valuations, including increased political partisanship following the US midterm elections and possible renewed escalation in the Middle East.

Yardeni expects these factors, alongside existing risk-averse sentiment, to contribute to continued pressure on market valuation multiples.

Nevertheless, the firm maintained its corporate earnings projections and its expectation that the US economy will avoid recession through 2029.

Its revised S&P 500 target reflects a reduction in valuation expectations rather than a change to its underlying earnings forecast.



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