Yardeni Research is holding firm on its bullish outlook for U.S. equities, projecting the S&P 500 to reach 7,000 points by year-end, even as market jitters over an AI-driven tech stock crash intensify. In its latest report to investors on November 19, the firm argued that fears of an AI bubble bursting may prove as unfounded as the "most predicted recession in history," which has been delayed for nearly four years.
Bullish Base Case, But Rising Bearish Probability
Yardeni assigns a 55% probability that the S&P 500 will hit 7,000 by December and climb to 7,700 by the end of 2026. But the risk balance has shifted. The firm cut its probability of a meltup scenario from 25% to 15% and raised its bearish probability from 20% to 30%.
The caution reflects growing investor concerns about:
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A potential AI bubble in tech stocks.
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Weakening consumer spending.
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Emerging credit market cracks reminiscent of the 2008 financial crisis.
Technical Weakness and Sentiment Indicators
Recent price action has underscored the risks. Both the S&P 500 and Nasdaq closed below their 50-day moving averages, down 4% and 6.4% respectively from late October highs.
Cryptocurrency volatility has added to the unease. Bitcoin plunged 26.8% from its October 6 peak, rattling technical analysts. Yardeni, however, believes crypto and leveraged ETFs like TQQQ are "likely to diverge," suggesting limited spillover into equities.
Short-term sentiment has also soured. The CNN Fear & Greed Index currently shows "extreme fear," a reading Yardeni notes often precedes a rebound.
Earnings and Sector Pressure
Wednesday’s weakness was compounded by a 5% drop in Home Depot (HD-US) after disappointing third-quarter results. The decline weighed on consumer discretionary stocks, adding to broader market pressure.
Positive Offsets
Despite the cautious tone, Yardeni highlighted several supportive factors:
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Record-high forward revenue for the S&P 500 Retail Composite.
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A 6.1% year-over-year increase in the Redbook Retail Sales Index.
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Private equity credit default concerns that are "unlikely to trigger another financial tsunami."
These signals suggest underlying resilience in consumer and retail activity, even as headline sentiment remains fragile.
The Bottom Line
Yardeni Research remains constructively bullish, sticking to its 7,000 target for the S&P 500 while acknowledging rising downside risks. With sentiment indicators flashing fear and technicals showing weakness, the firm sees room for volatility but not collapse.
For investors, the message is clear: the AI bubble narrative may be overstated, but the probability of a bearish turn has climbed to 30%. The balance between optimism and caution will define market trends into year-end.