Market Matters – From FOMO to FEMO
Markets are still strong, but the rally is becoming broader. US equities started the second half well, with the S&P 500 up around 9% year-to-date in USD terms, the Dow at fresh highs and the Nasdaq close to record levels despite some weakness in semiconductors. The key positive is that leadership is no longer just about big technology stocks: financials, industrials, healthcare, small/mid-caps and the equal-weight S&P 500 are all doing better.
The AI story is moving from excitement to earnings delivery. The note describes this as a shift from FOMO to FEMO — Fabulous Earnings Momentum. Unlike the late-1990s tech bubble, today’s leading technology companies are already highly profitable and cash-generative. The S&P 500 Information Technology sector trades on roughly 22x forward earnings, far below the c. 55x level seen before the dotcom crash, but investors now need to see that earnings expectations can be met.
Earnings remain the main support for equities. S&P 500 forward earnings reached a new record high at the end of June, and earnings upgrades are becoming broader across the market. This supports the view that the bull market is earnings-led rather than purely speculative. However, expectations are now high, especially in the AI supply chain, where semiconductor forward margins have risen above 50%, leaving less room for disappointment.
The economic backdrop still looks like a soft landing. The US labour market is slowing, but not breaking: hiring is moderating, wage growth is cooling and unemployment remains relatively low. Productivity gains are also helping companies protect earnings. Stable Treasury yields remain important, because range-bound yields would support further rotation into banks, industrials, healthcare, selective cyclicals and smaller companies.
The overall view remains positive, but more selective. Geopolitical risks in the Middle East are being watched through energy-market indicators such as oil, LNG flows, shipping through Hormuz and insurance costs, rather than headlines alone. UK and European equities still have support from low valuations, dividends, buybacks, infrastructure/defence spending and selected industrial strength. Near term, investors will focus on Q2 earnings season, with JPMorgan and Goldman Sachs reporting on 14 July alongside June CPI, followed by FOMC minutes, the Beige Book and the 28–29 July Fed meeting.