Thoughtful Money Sep 20, 2026 1h 2m 41m saved
With Ed Yardeni, President of Yardeni Research
Ed Yardeni has pushed his 8,400 target for the S&P 500 from the end of this year to the middle of next, and cut the odds on his own roaring 2020s scenario from 80% to 70%.
A strategist who turns cautious usually does it because earnings are rolling over. His are doing the opposite: analysts keep raising estimates and companies keep beating them. What has changed is what investors will pay for those earnings, and three things he cannot control — oil, the Federal Reserve and the Bank of Japan.
"We've had tremendous growth in earnings and yet the valuation multiple has actually declined."
Ed Yardeni, President of Yardeni Research, on Thoughtful Money, has been forecasting for 45 years, coined the bond vigilantes, and keeps a worry list his firm updates monthly specifically to discipline his own optimism. This interview is where that list got longer.
The full interview is covered here so you can skip it. 62 minutes of audio, 21 minutes of reading.
Here are the 14 calls that matter.
Key Takeaways
The 8,400 S&P 500 target moves from year-end to the middle of next year, because the multiple is shrinking faster than earnings are rising
His roaring 2020s odds go from 80% to 70%, with everything that could go wrong in the other bucket
He thinks the unwinding yen carry trade is one of the best explanations for why bond yields rose worldwide over the past two years
4–5% is the old normal and he still expects it to hold, with 10-year yields sitting right on the 5% line as he spoke
Two more Federal Reserve rate rises this year are now the consensus he works from, driven by oil rather than demand
The US economy is less rate-sensitive than it was: housing and autos still are, but they are smaller, and a third of households are headed by someone 65 or over
He rejects the K-shaped economy for a G-shaped one — the young have an affordability crisis, seniors do not, and seniors are funding the young
$90T of boomer net worth, plus another $20T in the silent generation
Interest on the federal debt now exceeds defense spending, and he says the bond market has started to care
If yields panic, he expects a Bessent bazooka: large Treasury buybacks of the long end, financed by issuing bills
AI safety pleas are regulatory capture, in his reading — the companies asking to be regulated want the entrants kept out
Where he would put money: market-weight tech and communication services at about 45%, via ETFs, plus financials, industrials, healthcare, materials and energy
1. The 8,400 Target Slips
The host opened by putting it to Yardeni that one of Wall Street's more bullish strategists has been writing more cautiously and has marked down his year-end S&P 500 target. Yardeni agreed with the characterization and gave the mechanics.
The target has not been cut, it has been moved by six months
The way I would frame it is we're moving the 8,400 for the S&P 500 at the end of this year into the middle of next year. Just think it's going to take us a bit longer here.
Ed Yardeni
The market, in his framing, is still being carried by what he calls FIMO — fabulous, or fantastic, earnings momentum, any upbeat word beginning with an F. What is working against it is the multiple.
Earnings are up and the multiple has gone down anyway
We've had tremendous growth in earnings and yet the valuation multiple has actually declined.
Ed Yardeni
Analysts are exuberant about earnings, he said, and investors are not. Their position, as he put it, is that the numbers are great but unbelievably strong, and they do not know they want to keep paying the multiples they have been paying. On where multiples actually sit: the S&P 500 has come down to about 19 from about 22, the Magnificent 7 from the 30s to somewhere in the mid-20s, and semiconductors now trade below the index. The host pressed that moderating is not the same as cheap, and Yardeni did not dispute it.
2. Oil, Then The Fed
His near-term worry is geopolitical rather than economic, and it runs through a single commodity.
Higher-for-longer oil seeps into inflation outside energy
So I'm looking at higher for longer oil prices as a result of that and that in turn means that inflationary pressures from the oil market will have more time to seep into the inflation rate excluding energy.
Ed Yardeni
The transmission he described is mechanical: diesel is energy, but it is also transportation cost, which is also agricultural cost. That is what has pushed the Federal Reserve into tightening.
Not one and done
I think everybody has concluded it's not going to be one and done but there could be two more rate hikes this year.
Ed Yardeni
3. The Yen Carry Unwind
The third thing on his list is the one he spent longest on. Japan ran zero and negative rates for years, and hedge funds borrowed there, converted into other currencies and bought assets around the world. That trade needs Japanese rates near zero and a weak yen, and it has neither.
The Bank of Japan has already taken its official rate to 1% and, as he spoke, was on the verge of raising by at least a quarter point. The yen looks to him like it is bottoming.
This is his explanation for global bond yields
I would say that one of the best explanations for why bond yields have gone up around the world in the past couple of years is because the yen carry trade has been unwinding as the bank of Japan has been moving towards raising rates and as the yen has basically in a volatile fashion formed a bottom.
Ed Yardeni
Asked directly how solid that is, he did not oversell it.
He calls it a theory, not a dataset
It's a theory. It's really hard—I don't have really data. I can't put it in the chart.
Ed Yardeni
What he does see is a coincidence between the Bank of Japan raising rates, Japanese yields soaring, and that tightening spreading outward. Asked how seismic a full unwind would be, he said a significant part of it has probably already happened — hedge funds have watched Japanese borrowing costs rise for two years and are not clueless. What has changed is the other side: Japanese investors can now get a decent yield at home.
Treasury Secretary Scott Bessent has been leaning on Japan to raise rates, he said, because a firm yen removes the risk that Japan intervenes by selling US Treasuries. Yardeni's point is that the cure may cause the disease.
Convincing the market Japan is tightening pushes yields up everywhere
But the solution he's proposing doesn't necessarily make this problem go away because if they convincingly convince everybody that they are tightening and that they intend to support the yen then you could see US bond yields and other bond yields go up because of the further unwinding of the carry trade.
Ed Yardeni
4. 4–5% Is The Old Normal
Yardeni has not joined the alarm about the level of yields, because he thinks the level is where it used to be before central banks intervened.
This range is what existed before the financial crisis
To me four to 5% is the old normal range.
Ed Yardeni
Central banks rigged their bond markets toward zero from the financial crisis through the pandemic, he said, and that period is over. Bonds are now free to express an opinion, which is another way of saying the bond vigilantes are back — his own term. The 10-year is sitting right on 5% and he is waiting to see whether it holds.
5% brings the buyers out, and did in 2023
I think 5% is a very attractive yield and we saw that happen in 2023.
Ed Yardeni
That year yields went from 4% to 5% in three months and there was no shortage of buyers to bring them back down.
5. Why Rates Bite Less Now
The old business-cycle model had rate rises hitting the whole economy. Yardeni said that channel has weakened. Housing and autos are still rate-sensitive; they are simply a smaller share of the economy. And a third of American households are now headed by someone 65 or older.
Retirees are indifferent to the labor market
And they couldn't care less what's going on in the labor market. They're retired.
Ed Yardeni
He offered an anecdote against himself from talking to portfolio managers who run money for wealthy clients. Those clients are nervous about the deficit and geopolitics and want to raise cash. Asked what they want done with the proceeds, the answer is 10-year Treasuries, which is to say they are worried about the government's finances and want to lend the government money.
Capital spending is the other reason rates bite less, and he said he is not sure what level of yields would shut off the AI build-out, because the companies doing it look committed to borrowing in the bond market and building data centers regardless.
6. A G, Not A K
Asked to square "less rate-sensitive" against far more debt and continuing deficits, Yardeni conceded the point and then reframed the consumer.
His shape of the economy is a G, not a K
In other words, I don't really believe in the K economy. The rich are getting richer, the poor are getting poorer. I believe in the G-shaped economy, which is the young people have an affordability crisis. Seniors don't have an affordability crisis, and they're helping their kids.
Ed Yardeni
The mechanism is the transfer happening now rather than at death. A lot of boomers, he said, have concluded there is no reason to wait until they are dead to help the children.
He also took a swing at the research behind the K case. Moody's has published that the top 10% of consumers account for 50% of spending, and more recently 60%.
He does not believe a tenth of the country is carrying consumption
That's got to be total nonsense. Makes no sense at all. Go to Costco. That's not the rich doing all that, jamming the store.
Ed Yardeni
His evidence is anecdotal and he said so: restaurants, malls, airports, and a trip to Italy where the American tourists were, by his estimate, 90% gray-haired. The host pushed back that boomer wealth is not evenly distributed, and put the working figure at roughly the top third of the cohort. Yardeni accepted the distribution point and moved the argument to the aggregate.
7. The $110T Boomer Pile
The number that anchors the whole consumer view
And then the retiring baby boomers are retiring with $90 trillion of net worth.
Ed Yardeni
And the generation above them
And by the way, there's another 20 trillion dollars if you count the silent generation. This is data that the Federal Reserve Bank puts out.
Ed Yardeni
That is roughly $110 trillion of net worth in the third of households headed by someone 65 or older, and within about two years every boomer will be 65 or over. Many of them no longer carry mortgages, or locked them in at 3% to 4% and have no intention of moving.
Income and wealth distribution is complicated, political and not fully answered by the data, he said. His position is that none of that changes the macroeconomic conclusion.
The forecasting rule he applies to all of it
My forecasting mantra is it is what it is. Don't get moralistic and philosophical on me here. Let's deal with what we have to deal with.
Ed Yardeni
The real test, he said, is whether a falling stock market finally brings the consumer down — and the host's follow-up was that those senior households carry a higher equity weighting than they historically have, and a higher one than younger generations.
8. The Debt On The List
Yardeni keeps a worry list, updated monthly, precisely because his instinct is to be optimistic. The compounding interest cost of federal debt is on it.
Interest now costs more than defense
We're spending more on interest expense than on defense
Ed Yardeni
The debt is going to be refinanced, and refinanced at higher rates. He said the bond market is starting to care about that.
He was equally clear about how often this alarm has been sounded. Forty-five years in the job have left him with books from the 1980s on his shelves, Living Beyond Our Means and The Debt Bomb, and, he admits, jaded about the imminent debt crisis, which he said is not a good thing to be in this business. Jamie Dimon and Ray Dalio have both called a crisis close.
The perma-bear trade record, and the caveat on it
But that doesn't mean they're wrong. It doesn't mean that at some point it won't matter.
Ed Yardeni
His own test for when to act
And my position on the whole thing is I'll worry about it when the bond market's worrying about it.
Ed Yardeni
Which is why the probabilities moved
So, my roaring 2020 scenario had been 80% subjective probability. Now it's 70%.
Ed Yardeni
The other 30% is the bucket holding everything that can go wrong, a debt crisis included.
Asked whether a specific yield is the trigger, at 6% or 7%, he said it is both the level and the rate of change, and that the level has to be read against nominal growth. Nominal GDP is running close to 7% year over year, and yields have historically only become a problem for the economy when they rise above it.
A 4–5% yield on a strong economy is not a problem
There's nothing wrong with having a bond yield of four to 5% reflecting a strong economy.
Ed Yardeni
And the economy is not the constraint right now
Right now, the economy is on fire. It's absolutely booming.
Ed Yardeni
Fed chair Kevin Warsh made the same point at his press conference, Yardeni said: the economy is doing well, which is a good sign.
9. What Breaks It: Credit
Pressed on what actually ends the run, Yardeni went back to the anatomy of bear markets. A bear market is when the multiple falls and earnings fall, which needs a recession. A correction is when the multiple falls and earnings do not, and people realize they got excited for nothing. That was 2022 — a textbook 25% drop over nine months with no recession, which turned out to be a buying opportunity, and anyone who got out probably never got back in.
The US has not had a recession since 2007 to 2009, he said; the two-month contraction in 2020 was policy-made. What usually causes one is a credit crunch, and he has not found the candidate. Private credit and private equity have had a scare already. Foreign participation in a recent 20-year Treasury auction looked weak to him, and he wondered aloud whether the volume of bad press is making foreign buyers stay away.
Panics usually end as buying opportunities, because policymakers panic too
But whenever you see panics in financial markets, it often turns out to be buying opportunities because the policy makers are also panicking and they're spending the weekends trying to figure out how do we stop this?
Ed Yardeni
10. The Bessent Bazooka
That led to the specific intervention he expects if yields spike.
The Treasury's weapon is buybacks at scale, funded with bills
And Treasury Secretary Scott Bessent has a bazooka. The bazooka is simply to announce that hey, you know what? I'm not going to buy back a piddling six billion here and there. I'm going to go for some much bigger numbers and I'm going to finance it by issuing bills.
Ed Yardeni
Yardeni called the result a Bessent twist, or a Bessent put. Bessent criticized Janet Yellen for something similar in 2023, he said, though the earlier version was not quite the same: Yellen told the bond vigilantes she would not increase bond issuance and would raise what she needed at the short end. The version he is describing involves actually buying the long end rather than the off-the-run illiquid paper, refinancing it with Treasury bills, and the Federal Reserve ending up holding a good share of those bills because it targets a bill rate.
11. No Brakes On AI Capex
The host asked what would slow AI capital spending — corporate America failing to see incremental revenue from adoption, hyperscalers buying each other's products, a dot-com-style pull-forward of valuation, or Congress regulating. Yardeni took the concern seriously and then dismantled the regulatory half of it.
The AI executives asking to be regulated are gaming the system
I'm on the side that thinks they're gaming the system.
Ed Yardeni
What they want, in his reading, is to capture the regulators and keep new entrants and open-source models out. If they genuinely wanted the technology checked, he said, they would do it themselves — and there are real product liability exposures already, since he would certainly sue a company whose program escaped its sandbox and destroyed his data.
The slowdown talk, he said, is entirely about large language models and the fear of building something smarter than us that works out we are more dangerous to it than useful, because we can pull the plug.
Yardeni is a user rather than a spectator. A colleague at his firm has become the house expert on Claude. Her name is Melissa and he calls her Claudette, and she has written small programs that, for example, read the FOMC minutes, compare them to the previous month's and grade them more or less hawkish.
If a small firm is doing this, the large ones are doing far more
So we're using it all the time and we're just a piddling little company.
Ed Yardeni
Which is why he does not expect a slowdown
So the demand for compute isn't going to slow down.
Ed Yardeni
Saudi Arabia wants data centers, China is building them, and the competition is global. His own framing of the technology is deliberately unromantic.
It is a processing story, not a magic one
My thesis on AI is that it's all about processing.
Ed Yardeni
He also questioned what investors are actually rooting for. A few months ago the Magnificent 7 were admired for free cash flow and no data centers, he said, and now they are in an arms race. If they slow the spending back into line with cash flow and stop tapping the bond market, that may be the good outcome rather than the bad one.
His own state of mind about the subject
My head's spinning from the whole thing.
Ed Yardeni
His practical answer is to buy an ETF of semiconductors and an ETF of software rather than pick.
12. Robots And The Pace
The host raised humanoid robots as the next wave, with China ahead. Yardeni's long-term view is that AI delivers most of what is promised. His short-term view comes from Keynes.
The warning is about the pace, not the technology
In the short term, I think a lot about Keynes's warning of technological displacement, which is you should replace people with technology when it can do a better job. But you have to be careful about the pace at which you displace that human labor that if you're not repurposing it to other productive use, you create a social problem, the cost of which might even be larger than the benefits of the technology.
Ed Yardeni
The host's version of that is tens of millions of low-skill service jobs disappearing within a couple of years. Yardeni reached for Rome, where slaves did the work and citizens wrote poetry, and allowed that history says new technology does not destroy employment — but that this one may blow history out of the water.
On the idea, which he said some technologists predict, that everyone ends up receiving an automatic paycheck, he was not enthusiastic.
An automatic paycheck is its own problem
Oh yeah that's also pretty depressing. You don't have to get up in the morning because you're getting an automatic paycheck and what are you going to do all day?
Ed Yardeni
Work is not only income
I could be retired but I like to work.
Ed Yardeni
The host asked the economist's question: if everyone gets the same paycheck, does inflation not eat it. Yardeni's answer was that there are too many moving parts, and he pivoted to what robots working around the clock do to supply. China is already producing more electric vehicles than it has a market for and dumping the excess, he said, and now that it is meeting resistance it is moving factories into other countries. Those factories bring Chinese robots rather than local jobs, which is what he thinks is happening in Vietnam, the back door that is booming because building there avoids the political pushback.
13. Where He Would Invest
Asked what to own, Yardeni started with size rather than selection.
Market-weight technology and communication services, which is about 45% of the index
So I would in an S&P 500, I would market weight information technology and communication services. You put them together and that gives you like a 45% weight in your portfolio
Ed Yardeni
Unless picking stocks is your job, he said, buy ETFs across areas of technology that should benefit from the technology, AI, nano and quantum revolutions.
The simplest version of the same idea
Nasdaq 100's been a fabulous performer for decades and should continue to be so.
Ed Yardeni
Then the companies that use the technology rather than sell it. Financials and fintech are spending billions on productivity, and he thinks the banks are in much better shape.
The low-hanging fruit he can see from his own desk
For the life of me I don't know why in my business I still get people sending me checks and I got to go to the bank and deposit them.
Ed Yardeni
His daughter, by contrast, asks him to Venmo it. On industrials, his argument is backlog: even if long-term AI infrastructure commitments get cut back, enough is already committed to keep those companies profitable for a couple of years. Healthcare he sees as left behind by this bull market, with biotech benefiting from the technology and hospitals finally digitizing and connecting records, so a patient who has been to two hospitals does not have to carry photocopies between them.
The digitization of hospitals is the specific opportunity
So there's a lot of technological innovation in healthcare that looks very very promising.
Ed Yardeni
The host then supplied two sectors Yardeni had not mentioned. The first was commodities for the build-out; Yardeni said he had simply forgotten it and that his firm is already overweight materials.
The metals list
But yeah, copper, steel aluminum, all these metals should do very very well.
Ed Yardeni
The second was the electrical grid and energy. He said the same thing, that it was late in the day and he had forgotten to mention it, then gave the position.
Energy is an overweight, held as a geopolitical hedge
But yeah, energy has been definitely an overweight more as a hedge against geopolitical problems.
Ed Yardeni
Asked about small modular and micro nuclear reactors, he handed the question to a colleague, Jackie Doherty, formerly of Barron's, who writes the firm's disruptive-technology work and, he said, knows the subject far better than he does. He thinks it makes a great deal of sense.
What he would actually do at these levels
Yeah, at these levels, I think you might get another opportunity to buy things cheaper and that's what I would do. Otherwise, I would just kind of stay invested in the areas we discussed.
Ed Yardeni
14. The Midterms Matter
The last question was whether the midterm results change his outlook. He said they are on the worry list, and that the problem with a worry list is that the items are connected.
A debt crisis, he said, is a man-and-woman-made problem, fixable over a weekend by a Congress frightened enough by the bond vigilantes to deliver real deficit reduction. That requires both sides to be talking to each other.
The political condition his own solution depends on
But what are the chances of that even if they were talking to each other? But if they're not talking to each other, that would be terrible.
Ed Yardeni
If the Republicans lose the House, he added, the president gets impeached again, which produces more partisanship rather than less.
Bonus Insights
The decade after this one is the one he is nervous about
I've been talking about the roaring 2020s. Knock on wood. So far so good. So I've been seven years into it. Market all-time record high, GDP all-time record high. I got three more years to go. Cross my fingers, no recession, market goes to 10,000. I'm a happy camper.
Ed Yardeni
The problem with the 2030s is they rhyme with the 1930s and that was a horrible geopolitical decade.
Ed Yardeni
Record GDP means the level, not the growth rate
The host caught a phrase and asked about it. Yardeni clarified that he means the absolute level of GDP is at a record, which is another way of saying there has been no recession. He expects about 5% real growth in the third quarter, and noted that if more of the growth comes from productivity with a weaker labor component, that is a radically different economy from the one of the past several decades. The host added that initial and continuing claims released that morning were about the lowest on record.
Science fiction as a career guide
Yardeni's aside on the large language model debate was that it resembles HAL in 2001: A Space Odyssey, and that it is strange how much science fiction has turned into science fact. On Elon Musk, his line was that Musk read The Hitchhiker's Guide to the Galaxy as a child and, unlike everyone else, took it for non-fiction — a guidebook for his career.
College is oversold
Prompted by the host's story about friends' children choosing trade school, Yardeni said he has been on record for a long time that too many people have been pushed into college for the wrong reasons, and that he is not anti-college but thinks the reason for going has to be specific.
And for many, many people, a practical trade will serve them much better than some paper college degree
Ed Yardeni
Where he gets his social media
He said LinkedIn is his go-to, on the grounds that its ratio of truth to fake news is relatively high, which is where he picked up a report about a Chinese plant where humanoid robots build humanoid robots. The rate of production was disputed on air, with one figure of 10,000 a year called implausibly low and 10,000 a month offered as the alternative. Neither was established.
Yardeni's bottom line is that nothing in his framework has broken. Earnings are still rising, the consumer is still spending someone else's retirement money, and the AI build-out is not slowing. What has changed is that the multiple is shrinking, the Fed is tightening into an oil shock and the Bank of Japan is dragging global yields up, which he says is worth six months rather than a change of view.
Products, Companies & Tools Mentioned
Yardeni Research (His firm. It publishes a worry list updated monthly, is overweight materials and energy, and market-weights technology and communication services)
The Bank of Japan (Official rate already at 1% and about to rise again; the unwinding of the yen carry trade is his favored explanation for higher bond yields worldwide)
The Federal Reserve (Tightening into an oil-driven inflation, with two more rises this year in the consensus he works from; also the source of the household net worth data he cites)
The US Treasury (Scott Bessent is leaning on Japan to raise rates, and holds what Yardeni calls a bazooka: large buybacks of the long end financed by issuing bills)
Moody's (Published that the top 10% of consumers account for 50%, more recently 60%, of spending — a claim Yardeni calls total nonsense)
Claude (The tool his firm runs on. A colleague writes programs with it that read the FOMC minutes and grade them against the previous month)
The Nasdaq 100 (His shorthand for the whole technology position: buy it and come back in ten years)
Venmo (His example of the productivity gap in financial services, against the checks he still receives and has to deposit at a branch)
Trane Technologies (Raised by the host, who interviewed its chief executive about three months earlier and was told there were few cancellations or delays in data center-related demand)
Costco (His evidence against the K-shaped economy: the crowds in the store are not the top 10% of earners)
Books & Resources Mentioned
Yardeni QuickTakes (What he recommends for individual investors and advisers, as against the institutional research at yardeni.com)
Living Beyond Our Means and The Debt Bomb (The 1980s books on his shelf, offered as evidence of how long the imminent debt crisis has been imminent)
The Hitchhiker's Guide to the Galaxy – Douglas Adams (Read by Elon Musk as a child, and taken, in Yardeni's telling, as non-fiction)
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