Street Calls of the Week
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.
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.