On Wall Street, the "Roaring2020s" will continue in the year ahead.
That's at least according veteranstrategist Ed Yardeni, who wrote in a note to clients on Monday that he expects
the S&P 500 to reach 7,700 by the end of next year.
"The Roaring 2020s remains ourbase-case scenario. For 2026, we are raising our subjective odds of this
prospect from 50% to 60%. We are less concerned about a meltup [or] meltdown
scenario now, so we are lowering the odds of that from 30% to 20%. We are
keeping our bearish scenario at 20%," Yardeni wrote in a note.
Yardeni's forecast assumes earnings and theeconomy "remain resilient" and adds to this year's list of stock
market outlooks, which have taken on a generally bullish tone.
Like some of his peers on the Street,Yardeni sees earnings growth powering stock prices.
"We expect that S&P 500 companies’ collective earnings per share will increase from $268 this year to$310 next year," he wrote, which would be a 15.67% increase. In the third
quarter, S&P 500 companies grew earnings by 13.4% from the prior year,
according to FactSet data.
Yardeni expects economic growth toaccelerate in 2026 too, citing Trump's focus on the affordability crisis, tax
benefits from the One Big Beautiful Bill, baby boomers reaching retirement,
monetary stimulus driven by a Fed rate cut, and the AI-driven tech boom, which
has tech giants planning over $500 billion in capital expenditures.
Wall Street forecasts for the S&P 500next year have ranged from 7,100 to 8,000, according to data from TKer's Sam
Ro. The index was trading near 6,850 on Monday afternoon.
In a separate note, Yardeni also said hewas ending his 15-year Overweight recommendation for tech stocks — including both the Technology (XLK) and Communication Services(XLC) sectors in the S&P 500. In other words, Yardeni is no longer
recommending investors hold more of these sectors in their portfolios than the
index weight.
"It's hard to recommend overweightingsomething that's already so overweight in the S&P 500 relative to its
importance in the economy," Yardeni told Yahoo Finance in an interview on
Monday. Together, these sectors account for about 45% of the index.
"Overweighting these two sectorscombined has been justified by their forward earnings share soaring to a record
38.6% of the S&P 500's forward earnings," Yardeni wrote.
"However, the riskiness of an S&P 500 portfolio has increased along
with its concentration in the two sectors."
"It's probably a good idea to look forsome rebalancing of the portfolio," Yardeni told Yahoo Finance. "In
other words, I'm arguing for some diversification, and that's been the concern
that a lot of people have had."
Yardeni, who has already been overweightFinancials (XLF) and Industrials (XLI) in client portfolios, is also
recommending an Overweight allocation for Health Care (XLV).