S&P 500 price target raised at Yardeni Research on upcoming Fed cuts

Investing.com -- Yardeni Research raised its year-end target for the S&P 500 to 6,800 from 6,600, citing expectations for Federal Reserve easing and continued economic resilience.

The firm assigned a 55% probability to this base case, while giving a 25% chance to a “meltup” scenario that could drive the index to 7,000 by year-end and a 20% probability of a correction.

“If the Fed lowers the federal funds rate on September 17 and signals more rate cuts ahead, we will increase our odds of a meltup and decrease our odds of a correction,” Yardeni said in a note. 

“We are still not convinced that the economy needs to be stimulated by the Fed,” it added.

The report followed a series of inflation data that kept policy expectations tilted toward easing. Producer prices came in cooler than forecast and consumer prices matched expectations, reinforcing the likelihood of a 25-basis-point cut next week.

Weekly jobless claims, however, jumped to 263,000, the highest level this year, which could lead some Fed members to push for a half-point cut. Still, Yardeni argued such a move is unlikely, as “the majority would likely dissent”.

Meanwhile, economic fundamentals remain solid. Real GDP expanded 3.3% in the second quarter, with capital spending on equipment and exports showing particular strength, alongside steady consumer spending at 2.3%.

The Atlanta Fed’s GDPNow model most recently estimated Q2 growth at 3.1%. Despite the weaker August jobs report, Yardeni emphasized that the economy continues to show momentum.

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Labor market trends were highlighted as a possible source of debate within the Fed. The rise in claims included a one-time 15,000 increase in Texas, which Yardeni suggested could reflect sector-specific issues, such as oil field layoffs, rather than a broader trend.

The market research firm also flagged productivity growth as a positive factor. Output gains relative to employment data suggest robust productivity, averaging 2.1% over the past three years, and projected to approach 3% through the remainder of the decade.

Inflation remains elevated relative to the Fed’s 2% target, with core CPI, core PCE, and core PPI readings clustered closer to 3%. Tariffs have contributed to higher durable goods prices, though Yardeni described the effect as “likely to be a transitory problem.”

A more persistent issue is “supercore” inflation, which continues to hold in a range of 2.9% to 4.0%, the firm added. 

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