The founder of Yardeni is not expecting a market bubble. He named the main driver of the year

Experienced market strategist Ed Yardeni of Yardeni Research rejected fears that U.S. stocks are in a bubble fueled by FOMO (fear of missing out), i.e. fear of missing out, CNBC reports. Yardeni believes that stocks have a new driver - FEMO (fabulous earnings momentum), which can be translated as "fabulous earnings momentum".

In other words, the profits of U.S. companies have been so strong that analysts do not have time to raise their stock forecasts, CNBC explains. As a result, one of the main indicators reflecting market valuation - the forward P/E multiple, the ratio of the value of securities to the projected profit for the next year - is declining. During a market bubble, this indicator, on the contrary, rises, writes CNBC.

"FEMO has decided everything this year," Yardeni wrote in a note quoted by the wire service. The strategist noted that the aggregate earnings outlook for companies in the S&P 500 has risen 14.4% since the beginning of the year, reaching a record high. At the same time, the index itself added only 9%, and the average P/E multiple decreased by 4.6%.

"The whole rally [in the stock market] was driven by forward earnings. The multiple has gone down. FOMO [usually] inflates the P/E, and the opposite has happened in this market. That's why we are not in the camp of those who see a bubble," Yardeni wrote.

He admitted that the market looks like a "melt-up" - a rapid acceleration of quotations against the background of a frenzy of demand fueled by the inflow of money from investors. And some shares of semiconductor companies, he said, are indeed appreciating too fast. But "the main difference from a bubble is profits," Yardeni said Wednesday on Bloomberg.

Yardeni expects the S&P 500 to reach 10,000 points by the end of the decade, which implies a 33% gain, under a scenario he calls a "roaring 2020s." The strategist says he has seen only one meaningful selloff this year - in March - and doubts there will be another before the end of the year.

Yardeni predicts the broad market index will rise to 8,250 points by the end of 2026, Bloomberg reports. This is the highest target among analysts tracked by the agency. It is nearly 10% above current levels.

Yardeni pointed out that the current jump in inflation is linked to rising oil prices, but is not accompanied by spiraling wage and price growth as it was in 2022. The analyst expects productivity growth to accelerate from 2%, the average of the past three years, to 3-4%. That, he says, should offset wage pressures and keep business labor costs from rising. Right now, the unit labor cost inflation rate, which reflects how much a company's labor costs are rising per unit of product or service produced, is at an annualized rate of 1.2%, Yardeni said.

He pointed out that oil markets have stabilized at around $100 a barrel despite the blockade of the Strait of Hormuz, with the US and Venezuela increasing oil exports, while China's economy appears to be weaker than commonly believed.

Although rising oil prices and other concerns are causing some volatility in the market, most investors see expectations for future earnings growth rising and therefore want to keep buying stocks, CNBC writes.

This article was AI-translated and verified by a human editor