Nvidia Earnings Adjust Chances for S&P 500 Record Year

The S&P 500 is poised for a stellar achievement this year, potentially recording its best annual gain in history. This forecast is fueled by the remarkable performance of megacap tech stocks in the first half of the year and a late-autumn rally driven by expectations surrounding the Trump Trade, which anticipates stronger economic growth and enhanced corporate profits.

As of now, the S&P 500 has surged over 24% this year and has experienced an additional gain of about 3.7% this month, coinciding with President-elect Donald Trump’s resounding victory in early November and a second consecutive interest rate cut by the Federal Reserve aimed at curbing inflation. This ascent includes more than 50 all-time highs and an impressive addition of nearly $6 trillion in overall market value for 2023.

Nvidia’s Earnings: A Game Changer

With Nvidia’s (NVDA) highly anticipated fiscal third-quarter earnings now behind us, the market is cautiously optimistic. Its performance carries weight in the broader financial landscape due to its significant representation in the S&P 500, Nasdaq, and now also the Dow Jones Industrial Average.

Kristian Kerr, head of macro strategy at LPL Financial, noted, “Nvidia moves the largest amount of money for a single stock in the world each day, dwarfing every other name in both U.S. and international markets.”

As Nvidia has consistently exceeded earnings expectations, it has reached a status that could be likened to a major macroeconomic data release. However, the immediate post-earnings stock reactions have been mixed, reflecting a cautious market as semiconductor stocks garner increased scrutiny.

Market Sentiment and Risk Appetite

Current risk appetite, showcased by all-time highs in bitcoin and substantial cash inflows into U.S. equity funds, suggests that the S&P 500 may find the necessary 4.5% gain to reach the 6,185-point mark needed for a record annual return. The Bank of America’s Flow Show report indicates that global investors are “all-in on Trump 2.0,” positioning themselves for further gains in U.S. assets leading up to the January 20 inauguration.

In terms of the U.S. economy, the outlook remains favorable. Walmart’s optimistic forecast for the holiday spending season, along with the Atlanta Fed’s GDPNow tool projecting a solid 2.6% growth rate for the current quarter, align with expectations for enduring U.S. economic exceptionalism.

EY’s chief economist, Gregory Daco, pointed out that “stronger private sector confidence on the prospects of pro-business policies and deregulation” will support spending and investment. This sentiment is mirrored in corporate earnings for the S&P 500, which are projected to jump by 8.8% year-over-year for the third quarter.

Challenges and Headwinds Ahead

Despite these promising indicators, an end-of-year rally is not without its challenges. The U.S. stock market is currently trading at its highest forward earnings multiple in over five years. Concerns over rising inflation and a potential interest rate cut from the Federal Reserve add layers of complexity to the market environment.

As per CME Group’s FedWatch, the likelihood of a quarter-point rate reduction is approximately at 50%, with Fed officials exhibiting patience while awaiting the impacts of the incoming Trump administration’s policies on taxation, tariffs, and immigration.

Geopolitical tensions, particularly regarding Russia’s incursions in Ukraine and escalating issues in the Middle East, pose additional risks that could impact market stability.

Corporate Earnings and Slowing Momentum

Furthermore, caution is apparent in the corporate sector, as negative preannouncements outnumber positive ones by a ratio of 2.2 as we head into the fourth quarter. This trend signals a more cautious outlook among businesses, which could impact stock performance moving forward.

While Trump’s policy initiatives—including significant tax cuts, tariffs, and immigration reforms—hold the potential to create substantial labor market disruptions, analysts also acknowledge the likelihood of these policies stimulating GDP growth and strengthening corporate earnings in the long run.

Wells Fargo analysts adjusted their end-2025 S&P 500 target upward to 6,700 points, asserting that “deregulation is likely and should support profit margins.”

Conclusion

All indications suggest that we are not experiencing a bearish market environment. While a number of headwinds exist, including inflation concerns and geopolitical risks, the potential for corporate profitability and robust economic growth driven by pro-growth policies cannot be understated. As we gear up for the end of the year, the S&P 500 stands at a crucial juncture with the possibility of achieving its best annual performance on record. Investors will need to remain vigilant, as the landscape continues to evolve rapidly amidst these dynamic economic indicators.