Credit 'FEMO' for driving the market higher despite Iran and other worries. Here's what it means

Forward Earnings Estimate Increase

14.4%

Represents the increase in forward earnings estimates for the S&P 500, reaching a record high.

P/E Multiple Decrease

4.6%

Indicates the contraction in the average price-to-earnings multiple as the S&P 500 advances.

Expected Earnings Growth

21%

Projected expansion in S&P 500 earnings for the second, third, and fourth quarters.

§ 01 Executive Snapshot

What: The stock market is being propelled by a new phenomenon termed "FEMO," or fabulous earnings momentum.
Who: Ed Yardeni, founder of Yardeni Research, and analysts such as John Butters from FactSet and Adam Parker from Trivariate Research.
Why it matters: This trend signifies strong earnings growth expectations among investors, contrasting with fears from macroeconomic factors like geopolitical tensions.

Forward earnings estimates for the S&P 500 have increased by 14.4%, reaching a record high.
The average price-to-earnings multiple has decreased by 4.6% while the S&P 500 index has advanced over 9% to new all-time highs.
Analysts predict S&P 500 earnings will expand by 21% or more in the upcoming quarters, contributing to an overall profit growth of 22.1% for 2026 compared to the previous year.

The concept of FEMO highlights a shift in market dynamics where earnings growth is becoming the primary focus for investors, moving away from the traditional FOMO driven by price movements.
The correlation between fundamentals and stock performance is being reinforced, suggesting a more stable market environment despite external volatility.

Immediate market consequences include continued buying pressure as investors focus on earnings growth, supporting a bullish market outlook.
Long-term implications suggest a potential shift in investor behavior, prioritizing earnings performance over macroeconomic fears, which could stabilize market volatility.

Potential risks include geopolitical tensions, such as the U.S.-Iran war, which could introduce volatility and impact investor sentiment.
Another risk is the possibility of earnings estimates being overly optimistic, which could lead to corrections if actual results fall short.

Key signals to watch include upcoming earnings reports for the S&P 500 and any developments in U.S.-Iran negotiations that could affect market sentiment.
Monitoring analysts' revisions on earnings estimates will be crucial to gauge the sustainability of the FEMO trend and its impact on market dynamics.

§ 07

What does FEMO stand for?

FEMO stands for fabulous earnings momentum, a phenomenon driving the stock market higher.

Who are the key analysts discussing FEMO?

Key analysts include Ed Yardeni, John Butters from FactSet, and Adam Parker from Trivariate Research.

How have forward earnings estimates for the S&P 500 changed?

Forward earnings estimates for the S&P 500 have increased by 14.4%, reaching a record high.

What risks could impact the FEMO trend?

Potential risks include geopolitical tensions, such as the U.S.-Iran war, and the possibility of overly optimistic earnings estimates.