Wall Street is doing something that sounds almost contradictory: stocks are rising while the market is getting cheaper.

The explanation sits underneath the index. Earnings expectations are rising much faster than stock prices.

According to veteran Wall Street investor Ed Yardeni, what is carrying the market is something he has taken to calling Fabulous Earnings Momentum.

The acronym is FEMO, and it is deliberate, because the second half of his argument is that the enthusiasm is entirely on the earnings side.

Investors are not paying more for those earnings. They are paying less.

Earnings Are Doing The Heavy Lifting

The forward P/E measures how much investors pay today for one dollar of expected earnings over the next 12 months.

Stock prices normally become more expensive when they rise faster than earnings.

The opposite is happening now.

In the second-quarter, S&P 500 companies saw their operating earnings rising by about 50% compared to a year ago.

FactSet now expects S&P 500 earnings to rise 28.5% year over year in the third quarter. Revenue is projected to increase 11.9%.

Third-quarter growth at 23.6% and the fourth quarter at 27.9%.

Forward earnings reached a record $401.75 per share last week, converging on the 2027 consensus estimate of $418.76 — a number that has now overshot the $415 year-end target Yardeni had set for both series.

The Multiple Is Going The Other Way

This is the part of the story that matters.

The S&P 500 forward price-to-earnings ratio is 19.2, Yardeni said, with the S&P 400 at 15.8 and the S&P 600 at 15.1. All three have fallen in recent weeks.

“FEMO isn’t being matched by fear of missing out (FOMO),” Yardeni said.

Since June 30, the S&P 500 – tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) – has risen 3.3% while the forward 12-month EPS estimate has risen 7.9%.

Earnings outran price, so the multiple compressed, from 20.4 at the end of the second quarter to 19.5 now.

A PEG Ratio With No Precedent In 30 Years

Yardeni’s sharpest data point is the PEG ratio, which divides the forward P/E by the growth rate analysts expect over the next five years.

It answers a simple question: how much is the market paying for each unit of expected growth.

That ratio has fallen to 0.75, the lowest reading in its 30-year history, Yardeni said.

The denominator is doing the work. Analysts’ long-term earnings growth estimate now sits at 26%, while the forward multiple has declined this year.

Yardeni’s reading is that investors are skeptical of those growth expectations and are refusing to capitalize them.

During the late-1990s technology boom, investors pushed valuation multiples far above what earnings expectations could justify.

The relationship has inverted.

“Analysts are exuberant. Investors are not,” Yardeni said.

Yardeni is holding his 8,400 year-end target on the S&P 500, the highest published on Wall Street against a Street average of 7,901.

From Friday’s close that implies roughly 8.8% upside. He said he may have to raise it if the 2027 estimate keeps rising.