The Fed might or might not raise the federal funds rate this month. The war in the Middle East may or may not be over (and isn't even a war anymore, says VP JD Vance). A debt crisis may be imminent, or not. The Republicans will probably lose the House in the midterms, or maybe not. Putin may or may not invade NATO. Trump might embargo US trade with countries with a trade surplus with the US, or whatever.
Meanwhile, there's no doubt that corporate earnings are soaring. Fabulous Earnings Momentum (FEMO) is driving the market higher despite all the uncertainties listed above.
I. Earnings
During Q2, S&P 500 earnings per share rose a whopping 50.7%, up from 19.0% during Q1 (chart). Analysts now project 23.6% for Q3 and 27.9% for Q4. Q2 includes the mark-to-market (MTM) gains we have flagged for several weeks. Without them, the Q2 gain was about 25%. The back-half earnings estimates exclude MTM gains, and the Q3 and Q4 estimates are still rising.
Forward earnings rose to a record $401.75 per share last week (chart). It is converging toward the year-end consensus estimate for 2027, which just jumped to $418.76, exceeding the $415.00 we set as our year-end target for both series.
We are sticking with our 8,400 S&P 500 year-end target for now. We might have to raise our S&P 500 target, which is the highest on the Street, if the 2027 estimate continues to rise (chart)!
