Independent Financial Research & Analysis
Daily briefings, 7,700+ real-time charts, and macro insights from Dr. Ed Yardeni and his research team.
Research
Latest Research
Recent insights from our research team
Lots Of FEMO In Q3's Earnings Reporting Season
I. FEMO in Q3 We have spent much of the past few months marveling at Corporate America's Fabulous Earnings Momentum (FEMO). S&P 500 earnings per share growth approached 30% y/y in Q1 and accelerated to more than 50% in Q2, although unusually large mark-to-market investment gains boosted both figures. Even excluding those gains, earnings grew roughly 20% and 25%, respectively. Q2 also marked the fifth consecutive quarter with record earnings. Q3 is shaping up to be another blockbuster quarter. As Joe reported this week, industry analysts' consensus forecast for Q3-2026 S&P 500 EPS growth started the quarter at an already remarkable 27.6% y/y. Rather than declining as it typically does during the quarter, it climbed 3.0 ppts to 30.6%. The level of expected Q3 EPS rose 2.2% over the quarter, ranking as the 12th-largest upward revision in the 130 quarters since Q2-1994. That's no small feat! Better yet, FEMO is broadening across Corporate America. Analysts expect all 11 S&P 500 sectors to deliver positive y/y growth in both revenues and earnings. Only once before, in Q2-2021, has such a perfect sweep occurred in the 25 years we've tracked the data. Overall, S&P 500 revenues are expected to grow 11.6% y/y, compared with earnings growth of 30.6% (chart). Energy is expected to lead Q3 earnings growth at a whopping 114.7% y/y, followed by Information Technology, Communication Services, and Materials (chart). Energy's expected earnings growth has surged from negative territory earlier this year, while Information Technology's has climbed steadily, reflecting the AI investment boom. II. Financials in Q3 Q3 earnings season kicks off next week with the big banks. The latest banking data suggest there is plenty to be optimistic about. Commercial and industrial loans rose 9.7% y/y during the week of September 23, while total bank loans and leases increased a robust 7.6% (chart). Both point to strong bank lending. Large domestic banks are leading the charge, with loan growth of 7.6% y/y compared with 5.5% at smaller banks (chart). Strong bank lending is another reflection of a resilient economy. Commercial banks' allowances for loan and lease losses stood at $203 billion during the week of September 23, little changed over the past two years, confirming that banks do not see a deterioration in credit quality. Meanwhile, new US corporate bond and equity issuance reached a record $3.1 trillion over the 12 months through August (chart). That's good news for investment banking activity and another sign of robust demand for capital across Corporate America. III. What could go wrong? All this sounds bullish, and it is! But our worry list remains long, not least because of the ongoing conflict in the Middle East. The bid-ask spread between Washington and Tehran remains wide. The risk of a military re-escalation is increasing. For now, we expect energy prices to remain higher for longer, keeping inflation and bond yields elevated (chart). Meanwhile, global bond yields keep rising (chart). In the US, stronger nominal GDP growth and a higher neutral rate partly explain the rise. The energy shock, the unwinding yen-carry trade, and mounting concerns about fiscal excesses are adding fuel to the fire. In France, the Bond Vigilantes are pushing yields above nominal GDP growth amid high debt, weak growth, and political gridlock. The risk is contagion across Europe. Other worries include second-round inflation effects, more aggressive Fed rate hikes, rising US debt-service costs, an AI investment slowdown, post-midterm political gridlock, and mega IPOs draining liquidity from the stock market. Against this backdrop, we recently moved our 8,400 target for the S&P 500 from the end of this year to the middle of next year. Importantly, we haven't lowered our earnings outlook. S&P 500 forward EPS reached a record $406.45 on October 1, and we still expect it to climb to $425 by year-end (chart). Instead, we reduced our target forward P/E from 19.8 to 18.6 to reflect valuation risks.
On Global Borrowing Binge & Nuclear Fusion
Globally, countries have been spending way beyond their means, absolutely and as a percentage of GDP. And the problem has been worsening, Jackie reports. Rarely has global debt issuance as a percent of GDP approached the 23% expected this year. With higher interest rates escalating governments’ interest expenses and wars necessitating higher defense spending, the end of this tunnel is dark. … Also: A look at the junk bond funding of two data center construction projects. … And: The promise of nuclear fusion is attracting big bucks from Big Tech investors. Five fusion-focused startups are cases in point.
The Bond Yield Spectrum
I. From The Good To The Bad To The Ugly The spectrum of explanations for the rise in bond yields worldwide includes relatively benign ones to downright dangerous ones (chart). On the good side of the spectrum, better-than-expected economic growth has driven US bond yields up to levels that are back to normal. On the ugly side, soaring bond yields in France are signaling a looming debt crisis. In between are bad scenarios that explain the synchronized rise in global bond yields. These include the inflationary energy shock attributable to the war in the Middle East and the unwinding of the yen-carry trade. Let's have a closer look at the good, the bad, and the ugly: (1) R-star rising. R-star, or the neutral interest rate, is the real interest rate consistent with low unemployment and price stability. It balances the supply of savings with demand for investment. Three forces are pushing it higher. First, demand for capital is booming along with AI-related capital spending. Hyperscaler capex is expected to reach $750-$800 billion this year and $1.2 trillion next. Total US corporate bond issuance over the past 12 months through August was a record $3.0 trillion, including $1.4 trillion and $1.6 trillion issued by nonfinancial and financial corporations, respectively (chart). At the same time, US Treasury borrowing totaled $2.1 trillion over the past 12 months through September, including $1.3 trillion in notes and bonds (chart). Second, national savings faces demographic headwinds as retiring Baby Boomers stop saving and draw down their net worth (chart). Third, stronger productivity growth may be raising the return on capital and the economy’s sustainable growth rate (chart). The Fed's 175bps cuts in the federal funds rate since September 2024 have been completely offset by a comparable increase in the 10-year Treasury bond yield since then. Even at the start of this year, most Fed officials believed that the FFR was modestly restrictive, i.e., that it exceeded the neutral rate. In September, they acknowledged their error by hiking the FFR by 25 basis points, as Fed Chair Kevin Warsh said they had removed a "dose of accommodation," implying that the FFR is actually below the neutral rate! (2) Energy shock. Moving toward the middle of the spectrum are higher-for-longer oil prices. With US-Iran talks stalled and the US increasing its military assets, the risk of renewed escalation remains high. The longer energy costs stay elevated, the greater the risk they'll boost core inflation, forcing a more aggressive Fed response. If crude oil prices fall because more oil is getting through the Strait of Hormuz, diesel prices might remain elevated (chart). (3) Unwinding yen-carry trade. The yen-carry trade was based on ultra-low Japanese interest rates and a stable or weak yen. Now the BOJ is raising interest rates and the yen may be bottoming (charts). This is forcing traders to liquidate bond holdings previously financed with cheap Japanese money. (4) Debt crisis. At the far end of the spectrum is the "Revenge of the Bond Vigilantes." Between the Great Financial Crisis and the Great Virus Crisis, major central banks' ultra-easy policies enabled governments to run large deficits. The Bond Vigilantes were powerless. But now they are more powerful than ever because government debt is at record highs. Central banks have been forced to raise their policy rates as inflation has been more troublesome in recent years. Bond yields have soared this year worldwide as inflation rebounded and fiscal-risk premiums have risen. The danger is a self-reinforcing debt spiral: Higher yields raise interest costs, widen deficits, require more borrowing, and push yields higher still (chart). And, of course, higher yields increase the risk of causing a recession, which would exacerbate any debt crisis. In our view, the US should remain in the higher R-star end of the spectrum. We would start to worry about the debt-crisis danger zone if the US bond yield rises above nominal GDP growth (chart). In France, on the other hand, the Bond Vigilantes are pushing the 10-year government bond yield well above nominal GDP growth (chart). The French could be toast if yields continue to soar. II. The Fed Minutes The latest Fed minutes paint a familiar picture: a resilient economy, a firm labor market, and inflation that remains too high. We drew three key takeaways from the minutes of the Fed’s September 15-16 meeting. (1) Restrictiveness. Several participants said the current policy rate was not restrictive or only mildly restrictive, while a couple explicitly raised their estimates of the neutral federal funds rate. That fits neatly with our R-star story. (2) Macro backdrop. The Fed saw a resilient economy: real GDP is expanding at a solid pace, consumer spending has firmed, AI investment remains robust, and the labor market is close to maximum employment. At the same time, inflation remains elevated and risks were still skewed to the upside. (3) Rate outlook. All participants backed September’s 25bps hike, and most judged that another increase would likely be appropriate by year-end.
Archive
Our Research Library
19 years of daily research, charts, and analysis
Topics
QuickTakes Topics
Timely commentary covering the most important market themes
Charts
Find Any Chart in Seconds
Search across 7,730+ real-time charts with instant visual previews
TARGET: FORWARD PROFIT MARGIN
S&P 500 UTILITIES SECTOR & INDUSTRIES: ANNUAL EARNING GROWTH FORECAST
DELL TECHNOLOGIES: PRICE, FORWARD EARNINGS & VALUATION
CONOCOPHILLIPS: FORWARD OPERATING EARNINGS PER SHARE
Sample charts from our collection of 7,730+ visualizations
Tools
Research Tools
Interactive dashboards for tracking economic conditions and market trends
Beige Book Monitor
Fed economic conditions across 12 districts with traffic-light signals.
FOMC Policy Meter
Dovish-to-hawkish policy stance tracker across FOMC meetings.
FOMC Minutes Monitor
Hawk/dove signal extraction across 10 economic themes.
FOMC SEP Monitor
Fed projections and dot plot distributions across meetings.
FOMC Statements
Every FOMC policy statement since 1997 — full text, rates, and voting records.
Private Credit Monitor
Auto-updating chronology of the private credit liquidity crisis.
Release Calendar
Major publications from the Fed, ECB, IMF, and 12 global institutions.
Try Yardeni Research free for four weeks.
Full access to everything we publish. No credit card, no obligation.