Key Takeaway
The stock market has entered a new psychological era defined not by the familiar FOMO (Fear of Missing Out) that characterized past bubbles, but by FEMO—Fear of Missing Out on Earnings. Coined by veteran strategist Ed Yardeni of Yardeni Research, this acronym encapsulates what may be the most fundamentally-driven bull market in recent memory. Through late May 2026, the S&P 500 has surged 9.2% year-to-date, powered entirely by forward earnings growth of 14.4% while the forward price-to-earnings ratio has actually contracted by 4.6%. This rare combination of rising prices and falling valuations defies traditional bubble narratives and suggests investors are paying up for genuine profit growth rather than speculative hype.
The market's resilience has been particularly striking given the geopolitical backdrop. Despite mounting tensions surrounding the Iran conflict, closure of the Strait of Hormuz affecting global oil flows, and persistent inflation concerns, the S&P 500 has notched its eighth consecutive weekly gain—the longest winning streak since December 2023. For investors seeking exposure to this earnings-driven rally, understanding the distinction between FOMO and FEMO is critical for positioning portfolios in the months ahead. Tools like Intellectia's AI Stock Picker can help identify companies with the strongest earnings momentum.
What Is FEMO? Understanding Fabulous Earnings Momentum
The Origin of FEMO
Ed Yardeni introduced FEMO as a deliberate counterpoint to the FOMO mentality that has driven speculative excesses throughout market history. While FOMO represents emotion-based buying driven by the fear that others are profiting from a trend one might miss, FEMO describes rational investment behavior grounded in fundamental analysis. The acronym stands for either "Fear of Missing Out on Earnings" or "Fabulous Earnings Momentum"—both capturing the essence of why sophisticated investors are deploying capital into equities despite elevated headline risks.
This conceptual framework matters because it explains why traditional bubble indicators are flashing yellow while the market continues making new highs. Yardeni's research demonstrates that unlike the dot-com era or the 2021 meme stock frenzy, the current rally has not been accompanied by multiple expansion. Instead, the price appreciation has been more than matched by earnings growth, resulting in what value investors would consider improved rather than deteriorating entry points.
The Data Behind the FEMO Thesis
The numbers supporting the FEMO narrative are compelling in their consistency. As of late May 2026, the S&P 500 has achieved its remarkable 9.2% year-to-date gain while forward earnings estimates have climbed 14.4%. This divergence between price appreciation and profit growth has compressed the forward P/E ratio by 4.6%, a pattern almost never seen during speculative manias. Historically, bubble phases are characterized by prices rising much faster than earnings, causing valuations to expand to unsustainable levels. The current environment represents the opposite dynamic.
Yardeni has been explicit about the implications: "The entire rally has been driven by forward earnings. The multiple has contracted. FOMO inflates the P/E. This market did the opposite. That is why we are not in the bubble camp." This statement cuts to the heart of why experienced strategists are maintaining constructive views despite the S&P 500 trading above 7,500 for the first time in history. The market is not cheap by historical standards, but it is becoming progressively less expensive as corporate America delivers on profitability promises.
FOMO vs FEMO: Why This Rally Is Fundamentally Different
The Anatomy of FOMO-Driven Markets
Fear of Missing Out has been the psychological engine behind virtually every major market bubble in modern history. During FOMO phases, investors suspend fundamental analysis in favor of momentum chasing. Prices decouple from earnings, valuations expand relentlessly, and new valuation metrics are invented to justify prices that traditional measures cannot support. The dot-com bubble saw price-to-sales ratios reach triple digits for companies with no path to profitability. The 2021 meme stock phenomenon saw heavily shorted companies with declining businesses trade at market capitalizations exceeding their entire industry's revenue.
FOMO markets share several common characteristics. Retail participation surges as inexperienced investors enter the market attracted by media coverage of extraordinary gains. Leverage increases as speculators borrow to amplify returns. Quality distinctions blur as fundamentally strong companies and speculative ventures trade in tandem based purely on momentum. Eventually, the absence of earnings support causes the structure to collapse under its own weight, often triggered by an external catalyst that restores rational thinking.
The Rational Foundation of FEMO
FEMO-driven markets exhibit almost opposite characteristics. Institutional investors rather than retail speculators typically dominate the buying, deploying capital based on disciplined analysis of earnings trajectories. Valuations compress rather than expand as profit growth outpaces price appreciation. Sector leadership tends to favor companies with demonstrated competitive advantages and visible earnings drivers rather than speculative ventures with distant profit potential. The AI infrastructure buildout has been a primary earnings driver, with companies like Nvidia posting record results that fundamentally justify their market capitalizations.
The distinction is visible in market microstructure. FOMO rallies typically feature high volatility with large daily swings as sentiment shifts rapidly. FEMO rallies tend to be steadier, characterized by consistent accumulation on modest volume as institutional buyers methodically build positions. The eight-week winning streak that has brought the S&P 500 to new highs has been notably low-drama despite the external uncertainties, suggesting deep-pocketed buyers with long time horizons rather than speculative hot money.
The Earnings Engine: What's Driving Profit Growth in 2026
AI Infrastructure Investment Cycle
The most significant earnings driver of 2026 has been the sustained capital investment in artificial intelligence infrastructure. Nvidia's fiscal first quarter 2027 results exemplified this trend, with the semiconductor giant posting record revenue of $81.6 billion representing 85% year-over-year growth. The data center segment, which houses AI chip sales, has been the primary growth engine with expansion rates exceeding 75% annually. This is not speculative revenue—these are actual purchase orders from major technology companies racing to build competitive AI capabilities.
The ripple effects extend throughout the technology ecosystem. Cloud service providers are expanding capacity to meet AI demand, driving sales for server manufacturers, networking equipment providers, and data center real estate investment trusts. Memory chip makers have seen pricing power return as AI workloads demand unprecedented amounts of high-bandwidth memory. Even traditional software companies are benefiting as enterprises increase IT budgets to incorporate AI capabilities into their operations. The AI investment cycle has proven more durable than skeptics anticipated, with no signs of demand saturation in the near term.
Corporate Efficiency and Margin Expansion
Beyond top-line growth, corporations have demonstrated impressive discipline in converting revenue to profits. After years of pandemic-era inefficiencies and supply chain disruptions, companies have optimized operations and controlled costs effectively. Gross margins have expanded across multiple sectors as pricing power has proven stickier than expected, while cost pressures from labor and materials have moderated. The result has been earnings growth that exceeds revenue growth—a pattern that investors reward with premium valuations.
Technology companies have been particularly adept at demonstrating operating leverage. As cloud infrastructure and software platforms achieve scale, incremental revenue flows disproportionately to the bottom line. This dynamic is visible in the expanding margins reported by industry leaders and explains why forward earnings estimates have continued climbing even as economic growth has moderated. For investors seeking to identify companies with the best margin profiles, Intellectia's AI Screener offers advanced filtering capabilities.
Market Outlook: Yardeni's 8,250 S&P 500 Target
The Path to Higher Prices
Ed Yardeni has maintained his year-end S&P 500 target of 8,250, implying approximately 9% additional upside from current levels near 7,500. This target is not derived from hoping for multiple expansion but from continued earnings growth that would justify higher prices even at current valuation multiples. If forward earnings continue growing at their current pace and the forward P/E simply maintains its present level, the index would naturally gravitate toward Yardeni's target without requiring any increase in investor optimism.
The strategist has acknowledged that the index may have already reached a near-term peak given the rapid advance, suggesting some consolidation or modest pullback would be healthy for the market's technical structure. However, any weakness would likely be viewed as a buying opportunity by institutional investors who have missed the rally or wish to add to positions. The FEMO dynamic creates a supportive bid under the market as long as earnings estimates continue rising.
Risks to the FEMO Thesis
No market outlook is complete without acknowledging risks that could derail the earnings-driven narrative. The Iran conflict remains a wildcard, with the Strait of Hormuz closure affecting global oil supplies and potentially triggering broader economic disruptions if diplomatic solutions fail to materialize. Oil prices have already experienced significant volatility, and sustained higher energy costs could pressure corporate margins and consumer spending simultaneously.
Interest rate policy represents another uncertainty. While the Federal Reserve has maintained a cautious posture, persistent inflation or concerns about fiscal deficits could force a more hawkish stance than markets currently anticipate. Rising real yields would pressure equity valuations regardless of earnings growth, potentially ending the FEMO phase by making fixed income more competitive with stocks. Investors should monitor Intellectia's pricing for tools that can help track these macro variables in real time.
Sector Implications: Where FEMO Is Strongest
Technology and AI Enablers
The technology sector has been the clearest beneficiary of FEMO dynamics, with earnings growth justifying the market's highest weighting in decades. Within technology, the AI infrastructure supply chain has demonstrated the strongest momentum. Semiconductor companies designing and manufacturing AI accelerators have posted triple-digit revenue growth rates. Data center REITs are commanding premium valuations as capacity utilization reaches historic highs. Even legacy technology companies are experiencing renewed growth as they pivot toward AI-enabled products and services.
Software companies have been more mixed, with those successfully integrating AI capabilities showing strong results while laggards face disruption risks. The market has been discriminating between these categories, rewarding demonstrated AI progress with premium multiples while punishing companies perceived as falling behind. This selectivity is characteristic of FEMO rather than FOMO environments—investors are analyzing business models rather than simply buying anything with a technology label.
Financials and Interest Rate Sensitivity
The financial sector has experienced a more complicated relationship with FEMO dynamics. Banks have benefited from higher interest rates expanding net interest margins, but face headwinds from commercial real estate exposures and potential credit deterioration if the economy slows. Insurance companies have been winners as investment income has surged with higher rates, offsetting underwriting volatility. The sector's overall earnings growth has been solid but not spectacular, causing financials to underperform the broader market despite attractive absolute returns.
As interest rate uncertainty persists, financials may remain a relative underperformer even if absolute earnings continue improving. The sector's valuation discount to the broader market reflects these uncertainties and may persist until the path of monetary policy becomes clearer. For tactical investors, this creates potential opportunity if earnings resilience surprises to the upside and valuations re-rate higher.
Conclusion: Positioning for the FEMO Era
The distinction between FOMO and FEMO is not merely semantic—it has profound implications for portfolio construction and risk management. FOMO markets require caution and skepticism as prices detach from fundamentals. FEMO markets reward disciplined analysis and patient accumulation of quality companies demonstrating genuine earnings momentum. The current environment, characterized by record stock prices accompanied by improving rather than deteriorating valuations, aligns clearly with the FEMO framework.
For investors, the key to navigating this environment is maintaining focus on earnings trajectories rather than price momentum alone. Companies demonstrating sustainable competitive advantages and visible growth drivers deserve premium valuations in a FEMO-driven market, while those relying on sentiment or speculation face heightened risk if the fundamental backdrop shifts. The S&P 500's march above 7,500 is not a bubble to fear but a reflection of genuine corporate success that may have further to run.
As always, the challenge is distinguishing durable earnings trends from temporary factors. The AI infrastructure buildout has delivered spectacular results, but all investment cycles eventually mature. Investors who identify the next wave of earnings drivers before they become consensus will be best positioned to benefit from continued FEMO dynamics. Sign up for Intellectia today to access AI-powered tools that can help identify the next generation of earnings winners before the crowd catches on.
