Independent Financial Research & Analysis
Daily briefings, 7,700+ real-time charts, and macro insights from Dr. Ed Yardeni and his research team.
Research
Latest Research
Recent insights from our research team
Europe’s Future
Five Central and Eastern European countries are enjoying an economic renaissance—expanding exports, growing GDP at rapid clips, and attracting foreign investment. William argues that investors seeking the next great European growth story need look no further than the de facto bloc of Poland, Romania, the Czech Republic, Hungary, and Slovakia. … Europe has been gaining relevance in the global economy by investing in strategically indispensable sectors: defense and aerospace, energy infrastructure, semiconductors, critical minerals, batteries, AI innovation, and digital infrastructure. But retooling Europe is expensive. Can Europe pay for its new relevance without reviving its old fiscal crises? France is the first test.
Irrational Exuberance In S&P 500 FEMO?
Are analysts' earnings expectations for the S&P 500 irrationally exuberant? So far this year, FEMO (fabulous earnings momentum, as measured by actual earnings per share) has been soaring, while FOMO (fear of missing out, as reflected in P/E multiples) has been mostly retreating. Much of that earnings optimism is concentrated in the S&P 500 Information Technology sector, particularly the Semiconductors industry, where the AI investment boom has fueled extraordinary demand, pricing power, and profit margins. But can these conditions persist? Let's take a closer look: (1) FEMO overwhelming FOMO. The S&P 500 is up 13.3% ytd, despite a 13.5% contraction in its forward P/E. That's because FEMO has overwhelmed waning FOMO, with forward earnings jumping 31.0% since the start of the year (chart). The divergence is even more striking in Information Technology. The sector's forward earnings has soared 65.5% ytd, while its forward P/E has plunged 25.9%. The S&P 500 IT stock price index has risen 22.6% ytd, powered by FEMO (chart). Industry analysts remain remarkably bullish on the S&P 500's fundamentals. Forward revenues is up 15.7% y/y, while forward earnings is up 39.0% (chart). (2) Semiconductors driving FEMO. Much of that optimism originates in the IT sector, where forward revenues and earnings are up 57.2% and 91.4% y/y, respectively (chart). Digging deeper reveals that the sector's extraordinary FEMO originates largely in the Semiconductors industry, where forward revenues and earnings are up 121.7% and 176.0% y/y, respectively (chart). Indeed, semiconductors now account for a record 55.0% of the IT sector's forward earnings and 40.9% of its market capitalization (chart). The growing importance of semiconductors extends to the broader market. Semiconductors now account for a record 20.4% of the S&P 500’s forward earnings and 15.8% of its market capitalization (chart). That makes the industry's earnings trajectory increasingly important for the entire index. Analysts expect Semiconductor revenues and earnings to grow 61.3% and 74.0% over the next year, respectively. More remarkably, they expect earnings growth to average 66.1% annually over the next five years. These extraordinary expectations help explain why analysts project IT sector earnings growth of 44.8% over the next year and 42.0% annually over the next five years (chart). In turn, analysts expect S&P 500 earnings to grow 19.0% over the next year and an average of 26.1% annually over the next five years, the latter approaching a record high. (3) Pricing power fueling Semiconductors' FEMO. To determine whether S&P 500 FEMO shows irrational exuberance, we need to assess whether Semiconductor FEMO does so. Much of the industry's extraordinary earnings growth reflects unprecedented profit margin expansion. The industry’s forward profit margin nearly doubled from the 2023 lows to a record 51.8% during the week of October 20 (chart). The explanation is straightforward: Demand for chips has surged as hyperscalers and neocloud providers have raced to build AI infrastructure, while supply is capacity constrained. The resulting pricing pressures are clearly evident in the PPI for electronic components & accessories (up 26.8% y/y through September) and the import price index for computer & electronic product manufacturing (up 12.4% y/y through September) (chart). (4) Will Semiconductors' pricing power persist? That's the critical question for assessing whether Semiconductor FEMO is irrationally exuberant. Investors already seem skeptical. The Semiconductor industry's forward P/E has plunged to just 14.2 despite surging earnings expectations (chart). In other words, unlike the tech bubble of 1999, any irrational exuberance in FEMO has been mostly offset by depressed FOMO! The goods news is that demand for chips should remain strong. The nine largest cloud service providers are expected to spend $957 billion on capex this year, up 106% y/y, and more than $1.5 trillion in 2027. But supply is starting to catch up. Global semiconductor manufacturing capacity is expected to expand 5% this year and another 6% in 2027, potentially easing shortages and price pressures. (5) Irrational earnings exuberance? We suspect there is some irrational exuberance in Semiconductor FEMO, particularly in analysts' consensus long-term earnings growth expectations. Today's demand-supply imbalance supports extraordinary profits, but sustaining current pricing power and margins over a longer time horizon seems optimistic as capacity expands. With Semiconductors accounting for more than one-fifth of S&P 500 forward earnings, that exuberance is reflected in the broader index. Nevertheless, FEMO remains robust beyond Semiconductors. Analysts expect Q3 earnings growth of 30.7% y/y, with positive growth across all 11 sectors (chart). Our diffusion indexes also show that an increasing share of S&P 500 companies is experiencing rising forward revenues and earnings (chart). Combined with expectations that semiconductor demand will continue to outpace supply, at least over the near term, this suggests that FEMO remains fundamentally rational.
On South Korea’s Chip Bet & Claude’s AI Bubble Meter
No economy has bet more chips (literally) on AI than South Korea. William explains why its stock market represents the purest AI trade and what’s at stake for the BOK’s upcoming monetary policy decision. … Also: Introducing YRI’s AI Bubble Meter. Melissa discusses the tool that Claude built to gauge whether investors’ heady expectations for AI are inflating a stock market bubble. The meter reads high on the bubble preconditions dial but low on the triggers dial. The takeaway: The meter says there’s a bubble, but it’s not about to burst.
Archive
Our Research Library
19 years of daily research, charts, and analysis
Topics
QuickTakes Topics
Timely commentary covering the most important market themes
Charts
Find Any Chart in Seconds
Search across 7,758+ real-time charts with instant visual previews
US FEDERAL GOVERNMENT BUDGET BALANCE AS A PERCENT OF NOMINAL GDP
BNY MELLON: STOCK PRICE INDEX, EARNINGS & P/E
S&P 500 SECTORS: ANNUAL EARNING GROWTH FORECAST
WELLS FARGO: STOCK PRICE (WFC)
Sample charts from our collection of 7,758+ visualizations
Tools
Research Tools
Interactive dashboards for tracking economic conditions and market trends
Beige Book Monitor
Fed economic conditions across 12 districts with traffic-light signals.
FOMC Policy Meter
Dovish-to-hawkish policy stance tracker across FOMC meetings.
FOMC Minutes Monitor
Hawk/dove signal extraction across 10 economic themes.
FOMC SEP Monitor
Fed projections and dot plot distributions across meetings.
FOMC Statements
Every FOMC policy statement since 1997 — full text, rates, and voting records.
Private Credit Monitor
Auto-updating chronology of the private credit liquidity crisis.
Release Calendar
Major publications from the Fed, ECB, IMF, and 12 global institutions.
Try Yardeni Research free for four weeks.
Full access to everything we publish. No credit card, no obligation.