spx

On December 5, 1996, Alan Greenspan stood before the American Enterprise Institute in Washington D.C. and asked a question that rattled markets worldwide. "How do we know when irrational exuberance has unduly escalated asset values?"
That single phrase — irrational exuberance — became the most famous warning in modern financial history. Nearly three decades later, the S&P 500 has had a remarkable run. Since bottoming on March 30th, the index is up 17.8% through Friday, hit a record high on May 14th, and is up 9.2% year-to-date.
Friday's session added another 0.4%, capping the index's eighth consecutive week of gains — the longest weekly winning streak since 2023. That 17% eight-week gain isn't just impressive. It's the 20th biggest eight-week rally the S&P 500 has recorded since 1950.
Bears are calling this irrational exuberance driven by AI hype. They're wrong.
Here's the distinction that matters. According to Yardeni Research, there's FOMO — Fear Of Missing Out — where investors pile in and bid up price-to-earnings multiples on hope and excitement alone. Then there's FEMO — Fabulous Earnings Momentum — where analysts raise estimates because hard data and company guidance actually justify it. FEMO, not FOMO, has driven this rally. That's a fundamentally different animal.
The earnings picture backs this up completely. Q1 earnings per share came in at +28% year-over-year against expectations of +13% heading into the quarter. Analysts now expect full-year EPS growth of 23%.
Forward earnings are up 14.4%. The forward P/E has actually contracted by 4.6%. Let that sink in — the multiple compressions even as prices rose. That's the opposite of bubble behavior. FOMO inflates the P/E. This market did the exact opposite.
Outside of post-recessionary rebounds, earnings growth this strong simply hasn't happened before. It's an unprecedented boom sitting squarely on the back of massive EPS gains from big tech. And history says what comes next is actually more gains — the biggest short-term rallies have historically been followed by average forward returns of 27% over the subsequent year, compared to 11% in other periods.
At 21.1 times forward earnings, the S&P 500 isn't irrationally valued — unless you think a recession is coming. Nobody credible does right now.
Yardeni Research makes another point worth understanding. The current bull market didn't start on March 31st, 2026. It started on October 12th, 2022. Since then, Information Technology is up 225.7%, and Communication Services is up 212.3%. Industrials gained 102.1%. Most other sectors delivered solid double-digit returns. The reason everything looks narrow is that a handful of large-cap tech names delivered triple-digit gains, making double-digit growers look like underperformers by comparison. Remove the outliers — it's still a solid bull market.
The deeper argument behind all of this is what Yardeni calls the Buzz Lightyear Theory. The idea is simple. Beyond the traditional three factors of production — land, labor, and capital — there's now a fourth: data. Unlike the other three, data supply is unlimited. The Digital Revolution that started in the 1960s has always been about processing as much information as possible, as quickly and cheaply as possible. Today's AI does that exponentially better than an IBM mainframe ever could.
If AI genuinely drives widespread improvements in productivity and earnings across the broader economy — not just in tech — the bull market broadens and continues. That's the thesis behind Yardeni's S&P 500 target of 10,000 by the end of the decade.
Earnings built this rally. Earnings will determine how far it goes.
The most bullish forecasters on Wall Street see significant upside ahead. Yardeni Research leads the pack with the highest target of 8,250, followed by 22V Research and Oppenheimer, both sitting at 8,100, and Deutsche Bank and Morgan Stanley tied at 8,000.
At the other end of the spectrum, the most cautious voices are Stifel Nicolaus with the lowest target of 7,000, joined by Bank of America and Ned Davis Research, both forecasting 7,100. With the S&P 500 currently sitting at 7,409 — below the Wall Street average of 7,612 — even the most pessimistic forecasters are only projecting modest downside from current levels, while the bulls are pricing in gains of more than 11% from here.
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