Veteran market strategist Ed Yardeni of Yardeni Research dismissed concerns that U.S. stocks are in a bubble, arguing the rally is driven by "fabulous earnings momentum" rather than speculation.
"The big difference is earnings," Yardeni said Wednesday on Bloomberg Television's Surveillance, adding that the forward price-to-earnings ratio for the S&P 500, at 20 to 22, looks reasonable if the economy avoids recession over the next few years. He coined the term "FEMO" — fabulous earnings momentum — to distinguish the current rally from "FOMO," or fear of missing out, which he said is based on hope and hype rather than fundamentals.
Yardeni, president and chief investment strategist for the firm that bears his name, acknowledged the market feels like a "meltup" with some semiconductor stocks rising sharply. He expects the S&P 500 to reach 10,000 by the end of the decade, representing a 33% run-up, in what he calls the "roaring 2020s" scenario. Yardeni said he has seen only one meaningful selloff this year, in March, and doubts another will occur before year-end.
His FEMO thesis helps underpin his 2026 S&P 500 target at 8,250. That's the highest among analysts tracked by Bloomberg, though the band of bulls seeing at least 8,000 expanded again when Goldman Sachs Group Inc. strategists raised their year-end estimate to 8,000 from 7,600.
Regarding U.S. inflation, Yardeni said the current spike is related to higher crude costs but lacks the wage-price spiral seen in 2022. He expects productivity growth to accelerate to 3% or 4% from the current three-year average of more than 2%, which would offset wage pressures and keep unit labor cost inflation near zero. Year-over-year unit labor cost inflation currently stands at 1.2%, he said.
Oil markets have stabilized around $100 per barrel despite the blockade of the Strait of Hormuz, Yardeni said, with the U.S. and Venezuela exporting more crude while China's economy appears weaker than recognized.
(This story was produced with the assistance of Bloomberg Automation.)
Credit: Bloomberg
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