Ed Yardeni, the long-time Wall Street strategist and president of Yardeni Research who has consistently been bullish on U.S. stocks, recently admitted that although the market has always viewed him as a “super bull,” in retrospect, he was still not optimistic enough about the current U.S. stock market rally. He stated that the core driver behind the continuous record highs in U.S. stocks is not investors blindly chasing the rally, but rather corporate earnings growth that has significantly exceeded expectations.
The Market Is Not Driven by FOMO, but by “FEMO”
In recent years, “FOMO” (Fear Of Missing Out) has often been used to describe investors’ frenzied sentiment of chasing the market. However, Yardeni believes the current market should be more accurately characterized by “FEMO” (Fabulous Earnings Momentum). This bull market is not reliant on continuous valuation expansion but is propelled by sustained corporate earnings growth. He points out that the overall valuation level of the S&P 500 has not spiraled out of control, remaining around 21 times earnings, while corporate earnings continue to surpass market expectations. According to Wall Street analyst forecasts, earnings per share for S&P 500 component companies are expected to accumulate a total increase of approximately 20% over the next seven quarters. This earnings-driven rally is healthier and more sustainable compared to one driven by market sentiment.
U.S. Consumer Resilience Far Exceeds Expectations
When discussing why the U.S. economy can continue to support corporate earnings growth, Yardeni specifically highlighted the strong performance of American consumers. Despite challenges such as high inflation, high interest rates, and significant volatility in international oil prices over the past few years, consumer spending has maintained considerable resilience. Even when gasoline prices briefly rose to $4 to $5 per gallon, overall U.S. consumer spending continued to grow. He believes one important reason is that the U.S. baby boomer generation has accumulated substantial wealth, currently holding approximately $89 trillion in net assets. This demographic possesses strong spending power and a wealth buffer, meaning that their impact on the overall economy when facing inflation and rising interest rates is relatively limited.
SpaceX’s Record-Breaking IPO Seen as a Positive Signal
Yardeni also views SpaceX’s (SPCX) record-breaking IPO as an important sign of market health. Last week, SpaceX completed the largest initial public offering in the history of U.S. capital markets, raising $75 billion. He believes this indicates that current market liquidity remains ample and investor risk appetite remains strong. However, some institutions caution that the S&P 500 is currently trading near historical highs, and its future performance will still be influenced by factors such as interest rates, inflation, and geopolitical risks. For Yardeni, sustained corporate earnings growth remains the most critical variable determining whether this bull market can continue: “As long as earnings expectations continue to be revised upward, this rally still has further room to rise.”