These four shocks could hand investors an unexpected buying window, strategists say

By Nora Redmond

Additional monetary policy tightening by the Federal Reserve would reflect the resilience of the U.S. economy and the central bank's determination to containflation, Yardeni Research said.

Get ready to buy the scares in the coming weeks, investment strategy firm Yardeni Research has advised.

Ed Yardeni and Elias Griepentrog wrote in a Sunday note that they see four different surprises that could lead to buying opportunities for investors with cash to spare.

It comes as the strategists have already extended their 8,400-point target for the S&P 500 SPX from the end of 2026 to mid-2027, with 7,900 set as the new year-end target - on concerns about rising bond yields, worsening geopolitical tensions, the funding of artificial intelligence and political uncertainty in the U.S. all weighing on valuation multiples.

"Our cautiousness reflects concerns about valuations, not about economic growth or corporate earnings," they said. "We expect the economic expansion and the bull market to remain intact as the Roaring 2020s continue."

Yardeni and Griepentrog outlined that the first thing market participants should be looking out for is how the war in Iran might unfold as fighting may be about to resume. Yardeni Research sees this as highly likely as neither side seems ready to concede and Tehran may aim to weaken President Donald Trump's political popularity ahead of the midterm elections.

The strategists added that geopolitical crises generally cause temporary panics, which could prove attractive entry points for investors if the U.S. economy stays strong.

Secondly, they wrote, the Federal Reserve could decide to raise interest rates by one-quarter point at its meeting on Wednesday - despite the market pricing in a 91% chance of a hold, according to FedWatch - or by 50 basis points when it convenes in December.

Either move could push Treasury yields higher, lead to stock market multiple compression and drive risk-off behavior more broadly, Yardeni and Griepentrog said, adding that this initial reaction would largely be based on the surprise rather than any economic fundamentals.

"After all, additional tightening would reflect the economy's resilience and the Fed's determination to contain inflation, and the policy rate would likely remain in accommodative territory," they said. "Any resulting selloff therefore could offer another buying opportunity."

The third potential event the economists highlighted is a surprise result from the U.S. midterm elections in November.

Although betting markets have increasingly forecast a Democratic Party sweep, Yardeni and Griepentrog believe investors have yet to fully discount the implications of this outcome. A Democrat-controlled Congress would bring more scrutiny to the White House administration, potentially resulting in blocks to Trump's judicial appointments and legislation.

But they also wrote that constraints on data centers from the Democrats could actually make the AI investment boom more durable by reducing the likelihood of overinvestment.

Yardeni Research also pointed to surprises in the AI trade as a possible upcoming buying opportunity. The capital expenditure boom is facing political, physical and financial constraints. Any proliferation in these areas could fuel another risk-off period in the market. However this could also help the trade overall as it might also subdue worries about overfunding.

The S&P 500 has declined five of the last seven weeks. S&P 500 futures (ES00) pointed slightly higher on Monday.

-Nora Redmond

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