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YARDENI CUTS S&P 500 "BEST CASE" VIEW TO 6,400 FROM 7,000

Ed Yardeni, president & chief investment strategist at Yardeni Research, who has been among the more bullish analysts on Wall Street, said in a note late Wednesday he was "blinking" on the valuation multiple of the S&P 500 .SPX and reduced his "best-case" 2025 target to 6,400 from 7,000.

In addition, Yardeni lowered his "best-case" target for 2026 to 7,200 from 8,000. His "worst-case" scenario for 2025 is 5,800 and 6,500 for 2026.

Yardeni said that he continues to bet on the resilience of the economy, but "we acknowledge that it is being severely stress-tested now by Trump 2.0’s tariff turmoil and shotgun approach to paring the federal workforce."

What may be the biggest surprise, said Yardeni, is that President Donald Trump was not bluffing or "even exaggerating" when he repeatedly said he loves tariffs, which has been defusing the widely held assumption that the tariffs threats were mostly a negotiating tool.

Recent comments from the commerce secretary to make the "External Revenue Service replace the Internal Revenue Service" is "simply dangerous and delusional nonsense," said Yardeni and it "certainly isn’t passing the sanity test in the US stock market."

Yardeni noted the massive disparity between the $4.9 trillion in federal tax receipts in the 12 months through January compared with the $87 billion in customs duties, with a 20% tariff on all imports raising less than $1 trillion. As such, it would take a 100% tariff to raise the $5 trillion needed to replace the IRS.

Even if that were the case, that would still not balance the federal budget, which would need to much higher to match the $7.1 trillion in federal outlays over the last 12 months.

This also assumes that funding the External Revenue Service doesn't start a global trade war, which could cause a depression and collapse of global trade. While Yardeni acknowledges this may be a bad assumption since some countries have already started retaliatory tariffs, others may follow suit at the beginning of April when the U.S. is set to impose reciprocal tariffs.

But despite the downgrade in targets, Yardeni said he is sticking with his strong estimates for S&P 500 companies' aggregate earnings per share of $285 in 2025 and $320 in 2026.

"That's if President Trump relents, as we expect he will to avoid a recession that would cost the Republicans their majorities in both houses of Congress in the mid-term elections in late 2026."

(Chuck Mikolajczak)

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