Yardeni Refutes the Bubble Theory: US Stock Market Rise Driven by 'Incredible Profit Momentum'

Yardeni Research's President and Chief Investment Strategist, Ed Yardeni, dismissed concerns about a bubble in the U.S. stock market on Wednesday, asserting that the current uptrend is driven by fundamentals rather than speculative hype.

During an interview with CNBC, he raised his end-of-year target for the S&P 500 to 8,250 points and reiterated that it could reach 10,000 points by the end of the decade, representing approximately a 33% increase from current levels.

Yardeni attributed his bullish logic to his own concept of "FEMO" (Fabulous Earnings Momentum), distinctly different from "FOMO" (Fear of Missing Out), which is based on hope and speculation. "The key distinction is earnings," he stated. As long as the U.S. economy avoids a recession in the coming years, he views the current forward price-to-earnings ratio of the S&P 500, ranging from 20 to 22 times, as reasonable.

In terms of macro narratives, Yardeni emphasized that the resilience of the U.S. economy is severely underestimated by the market, "The U.S. economy is like Rodney Dangerfield, it never gets the respect it deserves." He cited the strong U.S. capital markets and the ongoing technological revolution as the core drivers of productivity enhancement, referring to them as "the magical dust that makes everything in the economy better."

He referenced the tech dominance from Google, Amazon, Meta to AI, as well as the entrepreneurial culture in the U.S. that "excels at creative destruction" as concrete examples of American exceptionalism.

Yardeni admitted that there is currently a "melt-up" in the market, particularly evident in the surge of semiconductor stocks, but he does not view this as a bubble signal. Regarding geopolitical risks such as the Taiwan Strait situation, he has consistently seen them as "almost always great buying opportunities"; and regarding concerns about the scale of national debt and rising interest rates, he responded with his 45 years of experience: "The notion that debt will cause disaster has never come true."

In terms of oil prices and capital flows, Yardeni forecasted that oil prices would continue to decline and believed that the trend of global capital flowing continuously into the U.S. market would not change. "There is a substantial amount of wealth worldwide that wants to invest in the U.S., and it is earnings that are driving all of this," he added, noting that he only observed one significant sell-off in March this year and doubted that another one would occur before the end of the year.