Ed Yardeni is feeling more optimistic about stocks, which is saying something because he's already been pretty optimistic. The veteran Wall Street strategist just bumped up his famous "Roaring 2020s" thesis, raising the odds from 50-50 to 60% that we're heading into a productivity-driven boom that carries through the end of the decade.

On Monday, Yardeni published his updated outlook with a year-end 2026 target of 7,700 for the S&P 500. For context, that implies roughly a 13% climb from where the Vanguard S&P 500 ETF (VOO) trades today. Not explosive, but steady and meaningful.

"The coming new year looks like another good one for stock investors," Yardeni wrote in his latest note.

The Productivity Story Behind the Optimism

Yardeni's bullish case isn't just vibes. At the core of his "Roaring 2020s" scenario—which now carries a 60% probability—is the expectation that productivity growth surprises to the upside and pushes the S&P 500 all the way to 10,000 by decade's end.

He's forecasting U.S. economic growth between 3% and 3.5% next year, with unit labor costs cooling off and inflation drifting back toward the Federal Reserve's 2% target. That's the Goldilocks setup: growth without overheating.

The timing matters too. According to Yardeni, fiscal and monetary policy tailwinds are about to kick in with force. President Donald Trump's One Big Beautiful Bill Act, passed in July 2025, includes retroactive tax cuts and new deductions that will arrive as lump-sum refunds during the 2026 tax season. Meanwhile, the Fed's recent rate cuts should amplify both consumer spending and business investment.

Then there's demographics. Baby Boomers will be between 62 and 80 years old in 2026, and they're sitting on $85.4 trillion in net worth. Of that, $27.4 trillion is parked in equities and mutual funds. That wealth effect alone supports consumption and keeps the economic engine running.

And let's not forget Big Tech. The Magnificent Seven and their peers are expected to spend a record $500 billion on capital expenditures in 2026, with most of that cash flowing into artificial intelligence infrastructure. That's not just a number—it's a bet that AI will reshape how businesses operate and generate profits.

The Numbers Behind the 7,700 Target

Yardeni's math is straightforward. He sees S&P 500 earnings per share rising from $268 this year to $310 in 2026, with another jump to $350 in 2027. Apply forward valuation multiples ranging from 18 to 22 times earnings, and you get an index range between 6,300 and 7,700. His target sits at the high end of that range, reflecting confidence that valuations can hold up as earnings grow.

The macro backdrop looks supportive: cooling inflation, steady growth, policy stimulus landing at the right moment, and corporate America pouring capital into the next wave of productivity tools. It's the kind of setup that makes equity investors pay attention.

Six Risks That Could Spoil the Party

Of course, Yardeni isn't blind to what could go wrong. He lays out six specific risks that could derail the Roaring 2020s and send stocks lower.

First up: AI valuations. The market has already experienced volatility around artificial intelligence stocks, and widespread skepticism—think headlines asking "Is AI a bubble?"—could compress multiples or trigger a broader downturn.

Bond markets are another pressure point. Yardeni notes that the Bond Vigilantes are "instigating sovereign debt crises in Japan and the United Kingdom," and that stress could spill over into U.S. yields, making financing more expensive and weighing on equity valuations.

Private credit is on his radar too, though he believes Fed easing helps borrowers refinance and gives creditors room to manage risk. Still, cracks in private credit markets could spread quickly if conditions tighten.

Consumer retrenchment is a real threat, especially with job gains slowing. Yardeni points out that confidence remains depressed due to the affordability crisis—when people feel stretched, they pull back on spending, and that hits corporate earnings.

"Alternative scenarios include a bear case, triggered by a recession or recession fears (20% odds), and a stock market meltdown/meltup (trimmed to 20%)," Yardeni wrote.

Finally, there's geopolitics. Yardeni warns that if "China invades Taiwan or Russia invades Europe, all bets are off." That's the tail risk that keeps strategists up at night—low probability, but catastrophic if it happens.

So yes, Yardeni is bullish. But he's also realistic about what could go wrong. The 60% probability he assigns to the Roaring 2020s reflects confidence, not certainty. The next couple of years could be very good for stocks, or they could test investors' nerves in ways we haven't seen yet.