Ed Yardeni Talks Implications of Blue Wave in US Midterms

Yardeni keeps 7,900 S&P target as midterms approach

Edward Yardeni is not backing off. He keeps a 7,900 year-end target for the S&P 500 on the strength of earnings, and says the AI build-out is real even though it is unclear whether AI customers generate enough revenue to justify the spending. The market is now doing the disciplining the sector avoided, with bond vigilantes making neocloud borrowing costlier and OpenAI unable to raise what it wanted. The next test is the midterm election, where a Democratic sweep would deepen partisanship and lengthen shutdowns, and even the gridlock markets usually welcome could turn into a cold shower.

Takeaways

• AI trade is not finished. Yardeni Research holds its 7,900 year-end target for the S&P 500, and Yardeni says this is not the beginning of the end of the AI trade because AI works for customers. Whether those customers generate enough revenue for the companies themselves is unclear.
• Credit markets are cooling the AI boom. Neoclouds borrowed willy-nilly and now face costlier, more regulated credit, and OpenAI tried to raise more than the market would give. Yardeni welcomes bond vigilantes allocating credit properly. Slower AI bond issuance relieves pressure on outstanding bonds, which he prefers to the stocks.
• Earnings still carry the market. Weekly analyst consensus was flat and analysts did not cut numbers despite earnings haircuts at Alphabet and Intel. They remain bullish for 2027 and 2028, with a 2028 consensus of $500 a share that Yardeni Research had projected for 2029.
• A Democratic sweep would hurt markets. If Democrats take the House and possibly the Senate, partisanship worsens and the next debt crisis or shutdown lasts longer and hits the economy harder. Gridlock, which the market usually loves, could be a cold shower this time.
• Market may be underpricing a sweep. Yardeni says the market has not fully priced a Democratic sweep, partly because it is contrarian and partly because Democrats answer pollsters while Republicans do not. He says serious, credible deficit reduction legislation may be needed if the bond market acts up.
• AI build-out slowdown is welcome. Yardeni says a slowdown in the AI build-out is a good thing, and hyperscalers with large backlogs are still scrambling to build data centers. Uncertainty remains over when all the spending will produce earnings.
• Economy works despite Washington. Yardeni repeats his long-standing view that the US stock market and economy do well regardless of government, crediting working people rather than Washington. Government meddles a great deal and that can hurt stocks, he says, and the year-end cheer is in earnings.