Ed Yardeni has turned even more bullish on the S&P 500.
What Happened: The veteran Wall Street investor is hiking his year-end target and forecasting a significant surge by the end of this decade fueled by robust earnings and technological advancements.
In a note, the president and chief investment strategist at Yardeni Research raised the year-end target for the S&P 500 from 5,400 to 5,800 points — implying a 6% surge from current levels.
Yardeni also projects that the index, which is closely replicated by the SPDR S&P 500 ETF Trust (NYSE:SPY), could reach 6,300 points in 2025 and 6,825 points in 2026 under a "Roaring 2020s scenario," which he estimates has a 60% probability.
Forward earnings could hit $400 per share by the end of 2029, potentially pushing the S&P 500 to 8,400 points, a 55% rally from current levels, he said.
Earnings As Backbone Of Continued Stock Market Gains
He highlighted that second-quarter earnings reporting season is progressing well, with the earnings-per-share (EPS) growth rate for S&P 500 companies soaring to 8.7% year-over-year during the week of July 25. Yardeni expects full-year EPS growth to reach 10%-12% year-over-year.
Yardeni expects S&P 500 forward revenues per share to rise further, after hitting record highs with a 5.7% year-over-year increase during the week of July 18.
"That's a solid increase considering that inflation has moderated significantly over the past year. The S&P 500 forward profit margin at 13.4% currently is almost back to its record high of early 2022," he wrote.
Magnificent 7 And Broader Market Strength
"We think that the very highly valued Magnificent-7 stocks will remain magnificent and continue to sport a high collective forward P/E, providing support to the S&P 500," Yardeni stated.
He also suggests that the forward P/E of the S&P 493 (the S&P 500 minus these seven stocks) could rise further as corporate profit margins benefit from technological innovations such as automation, robotics, AI, the cloud, and supercomputing.
Near-Term Election Volatility, Fed Policy To Remain Restrictive
Despite the bullish outlook, Yardeni expects some near-term volatility.
He predicts the S&P 500 will fluctuate below its July 16 record high through the election period, finding support around 5,450, its 50-day moving average, thanks to strong corporate earnings.
Yardeni forecasts the Federal Reserve will cut the federal funds rate by 25 basis points to a range of 5.00% to 5.25% in September and maintain it steady for the rest of the year.
"While we expect the Federal Open Market Committee (FOMC) to cut interest rates at its September meeting, we do not think it needs to because we don't see a recession looming," he explained.
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