S&P 500 analyst does an about-face on street-high target as Fed cracks down

· The Fresno Bee

Wall Street money managers have tuned in to hear analyst Ed Yardeni’s forecasts for decades, and earlier this year, his prediction that the S&P 500 would reach 8,400 by year’s end caught a lot of attention, given it was the highest estimate on Wall Street amid what appeared to be an ever increasingly risky backdrop.

Now, Yardeni is walking back that eye-poppingly good forecast, saying that the S&P 500 won’t hit that level in 2026 after all. Instead, he now believes investors will have to wait until the middle of 2027 to see the benchmark at that level.

Yardeni resets target as Fed restarts its war on inflation

Yardeni’s decision to stretch out the timeline for reaching 8,400 coincides with the Federal Reserve’s latest decision on interest rates.

On Wednesday, September 16, the Federal Open Market Committee determined that the best course of action was to raise, rather than lower, the Fed Funds Rate, in an attempt to wrestle inflation lower.

The move is a sharp contrast by the Fed, which, under prior Chairman Jerome Powell, caught significant flak for not cutting rates fast enough. Replacing Powell with Kevin Warsh on May 22 was supposed to clear the way for lower rates, rather than higher rates. At least, that was the plan before the White House took action in Iran, crimping oil supply and sending gas prices soaring.

Also read: Fund manager’s Fed interest rate outlook will frustrate consumers

Yardeni now believes the S&P 500 will trade at 7,900 by the end of 2026, up from 7,610 currently.

“Given the recent backup in bond yields, we are lowering our estimate for the forward P/E of the S&P 500 at year-end from 19.8 to 18.6, which lowers our year-end target from 8,400 to 7,900,” said Yardeni in a research note, according to Bloomberg.

The Fed taps the economic brakes

The cut to Yardeni’s forecast is due to the impact of higher yields. The 10-year Treasury Note yield has risen toward 5%, and as I’ve previously written, that spike in yields makes bonds more competitive with stocks while also creating a headwind for future economic growth.

The 10-year yield is often used as the risk-free rate in determining whether to invest in new projects, and many loan interest rates rise and fall alongside it. As a result, the 10-year not only correctly predicted the Fed’s need to raise rates this week but is also creating a headwind for revenue and profit growth among S&P 500 member companies.

The Fed’s goal is to offset the inflationary impact of oil and gas on supply chains by dampening down end-user demand. Whether that works remains to be seen, given that inflation is arguably a supply-side issue currently, rather than a demand-side problem.

In July, the PCE price index increased 3.7%. The core PCE, excluding food and energy, rose 3.3% from one year ago. That’s far above the Fed’s 2% inflation goal, and the August data, which is reported on September 30, isn’t likely to show much improvement.

Goldman Sachs currently predicts core PCE will be 3.15% in August, after factoring in changes to methodology that are taking effect that will reduce reported inflation.

Bloomberg / Getty Images

Fed signals more risk of higher rates

Chairman Warsh’s Fed dashed hopes that the September interest rate hike, which raised rates to a 3.75%-4% range, would be a one-and-done action.

The September dot-plot, which shows where Fed members believe interest rates are heading, suggests we’ll see a second hike before the end of 2026, rolling back the interest rate cuts made last October and December under Powell.

“Will the Fed deliver that next hike before the midterm elections? Either way, that’s one more than the market was expecting before the end of 2026 per the CME FedWatch Tool earlier today,” wrote TheStreet Pro fund manager Chris Versace in response to the updated plot.

Four of the 18 members who submitted their outlook think the Fed could raise rates two more times, according to CNBC.

The CME FedWatch tool, which uses bond futures markets to estimate probabilities for future Fed interest rates, now shows a 49% chance that the Fed Funds Rate will be increased to a range of 4% to 4.25% in October. One month ago, the chances of rates being 4% in October stood at just 7%.

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Wall Street’s kneejerk reaction to the Fed decision resulted in the S&P 500 gaining ground, but post-decision volatility is common, and by 3 pm EDT, the index had reversed gains and was down 0.4%.

“Equities could initially respond positively to what is perceived to be responsible monetary policy in the face of sticky inflation. I don’t expect the rally to be sustained, and I plan to short Indices on a ramp higher,” wrote hedge fund manager Doug Kass in his TheStreet Pro diary prior to the Fed announcement. “I believe we have already seen a top in the S&P and Nasdaq Indices for the year.”

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This story was originally published September 16, 2026 at 12:08 PM.