Ed Yardeni of Yardeni Research highlights that the stock market's upward trajectory is now fueled by what he terms 'FEMO,' indicating that earnings momentum is so strong that analysts are struggling to keep up with rising estimates.
He notes that forward earnings estimates for the S&P 500 have increased by 14.4%, reaching a record high, while the average price-to-earnings (P/E) ratio has decreased by 4.6%. This suggests that the market is not in a bubble, as the rally is driven by actual earnings growth rather than inflated valuations.
Analysts, including FactSet's John Butters, project a 21% increase in S&P 500 earnings for the upcoming quarters, leading to an overall profit growth of 22.1% year-over-year by 2026. Despite external factors like the U.S.-Iran conflict causing some market volatility, the prevailing sentiment among investors remains optimistic due to the strong fundamentals underpinning the market's performance.
Adam Parker from Trivariate Research supports this view, stating that market performance has closely followed fundamental earnings growth. The S&P 500 has achieved its eighth consecutive week of gains, buoyed by hopes of a resolution to the U.S.-Iran tensions, further reinforcing the importance of earnings momentum in driving market trends