I. FOMO vs FEMO
Forecasting the stock market is easy! Just multiply the P/E (price-to-earnings ratio) by E (earnings per share) to get P (the stock price index). The hard part, of course, is getting the P/E and E right. We call the P/E component FOMO (fear of missing out) and the E component FEMO (fabulous earnings momentum). This year, investors have been on a rollercoaster ride as FOMO has fluctuated mostly to the downside, while FEMO has continued climbing.
More recently, concerns about AI investment returns and rising US Treasury yields have tightened credit conditions, raising fears about the sustainability of the AI investment boom and weighing on P/Es. Since early October, multiple compression has outpaced continued earnings gains, dragging many stocks lower.
Semiconductors have been at the center of the recent rout, with the semiconductor stock price index plunging 15.7% over eight consecutive sessions. However, FOMO staged a comeback today, with the Nasdaq rising 1.1% and semiconductors gaining 1.6%, snapping their losing streak. The FOMO rollercoaster continues, but FEMO remains firmly on an upward trajectory.
Here is more:
(1) S&P 500. So far this year, forward earnings surged 31.0% ytd through October 19, more than offsetting a 14.2% contraction in the forward P/E. Consequently, the index is up 12.3% ytd (chart).
