Although Ed Yardeni has become increasingly wary of the stock market, he hasn’t given up on one of Wall Street’s most ambitious long-term projections. Yardeni Research now expects the S&P 500 to finish 2026 at 7,900, after moving its previous 8,400 year-end target to mid-2027. The reason is not deteriorating corporate profits. It is how much investors may be willing to pay for them. The firm lowered its year-end forecast for the S&P 500’s forward price-to-earnings ratio to 18.6 from 19.8, according to an Oct. 14 note from Yardeni Research. Yardeni still expects earnings of $425 per share in 2027 and no U.S. recession through the end of the decade. Investors face a strange situation. Yardeni still expects the S&P 500 to reach 10,000 by the end of the decade, but valuations may continue to fall even as earnings rise. That difference is important for anyone with a 401(k) or an S&P 500 index fund. In essence, Yardeni argues that the bull market may endure even without stock prices rising steadily. Companies may only need to earn their way up to the next step. Yardeni says the S&P 500 has a valuation problem Following the market’s drop on October 14, Yardeni’s warning gained additional attention. The S&P 500 dropped 1.1% to 7,718.94 that session, while the Nasdaq Composite and Russell 2000 each fell 1.9%. Semiconductor stocks fell even harder, with the iShares Semiconductor ETF dropping 4.5%, according to Yardeni Research. These losses align with the danger that Yardeni has been pointing out since September: profits may remain robust while investors decide they are no longer prepared to assign ever-higher values to them. Because there are two fundamental engines driving stock prices, the distinction is significant. Businesses may increase profits, or investors may consent to pay a larger multiple for those profits. Yardeni believes the first engine is still operational. The second seems to be less trustworthy. “Our concern isn’t earnings; it’s stock valuations,” said Ed Yardeni. Yardeni Research has maintained its 2027 S&P 500 earnings estimate at $425 per share, only slightly above the analyst consensus of $423.08 cited by the firm on Oct. 14. Yardeni has already raised the likelihood of a pessimistic conclusion to 30% and decreased the subjective probability of its positive “Roaring 2020s” scenario from 80% to 70%. The firm cited greater geopolitical and market risks while continuing to expect the U.S. economy to avoid a recession through the end of the decade. All he’s done is increase the bar for stocks. Ed Yardeni sees a tougher path to his 10,000 target Bloomberg / Getty Images The S&P 500’s 10,000 target depends on earnings Yardeni may reduce his short-term goal without giving up on 10,000 because of his longer-term stats. Industry analysts currently expect S&P 500 operating earnings per share of roughly $364 in 2026, $419 in 2027 and $489 in 2028, according to Yardeni Research. Yardeni’s own forecasts are more conservative farther out: $450 in 2028, $475 in 2029 and $500 in 2030. Related: Sector rotation reveals new buying opportunities (even with the S&P 500 at record highs) The long-term calculus is simpler to comprehend thanks to those figures. An S&P 500 level of 10,000 would indicate a price-to-earnings ratio of 20 at $500 in earnings per share. Although it isn’t exactly a deal, it wouldn’t need the type of significant value growth that would be required if earnings stopped increasing. More Wall Street: Nvidia and Micron are about to lord their successes all over Wall Street Nvidia, Palantir, and Alphabet send waves through Wall Street Wall Street elites will pocket windfall from record $46 billion profits The issue is that the market’s fastest growth is already largely dependent on a small number of businesses. The S&P 500 was approaching 8,000 this month, but analysts expected third-quarter earnings growth of 30.6% to remain heavily concentrated in the largest technology companies. Excluding the Magnificent Seven, technology and energy earnings growth falls to roughly 5%, Reuters reported. Market breadth also supports similar conclusions. More than 40% of S&P 500 stocks were down for the year as of Oct. 12, even though the index itself had gained about 14%. The median stock was up only around 4%, according to Reuters. This focus increases the significance of Yardeni’s earnings argument. The S&P 500 would have more opportunities to rise if profit growth expanded to more businesses. The route becomes considerably more precarious if it stays focused on artificial intelligence and a few mega-cap names. Yardeni’s biggest S&P 500 call still has a catch Although a 10,000 S&P 500 sounds dramatic, Yardeni’s prediction is not very intriguing. It’s the mechanics behind it. Investors should anticipate higher valuations earlier in 2026 due to both improving profitability and excitement around artificial intelligence. Now, Yardeni is speculating that one of those factors could be waning. This implies that incomes will have to bear more and more of the load. Reuters reported earlier this month that Yardeni still expects the S&P 500 to reach 10,000 by the end of the decade. The target would require another large advance, but continued profit growth could achieve it without extreme valuations. I find it noteworthy that Yardeni’s projection is now more demanding rather than less optimistic. A market driven by price-to-earnings multiples may rise rapidly when interest rates rise or excitement wanes. Assuming corporate profits materialize, a market driven by them is stronger. Upcoming earnings reports are crucial because of their timing. Investors want proof that firms can continue to generate earnings despite higher borrowing costs, inflationary pressures, and a more competitive market, as well as evidence that growth is spreading beyond a few massive technology corporations. As a result, Yardeni may be correct about two things at once. In the short term, the S&P 500 could struggle around 8,000, but in the long run, 10,000 might still be a realistic target. The difference between those figures may depend more on whether corporate America can earn its way there than on investor excitement. Related: Goldman Sachs spills the beans on what’s next for S&P 500
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