Nvidia Earnings Adjust Chances for S&P 500 Record Year

The S&P 500 index is poised to achieve its most impressive annual gain on record this year, thanks in large part to the remarkable performance of megacap technology stocks in the first half of the year and a surge in stock prices driven by optimism about economic growth and corporate profitability following the election of President-elect Donald Trump. As of now, the benchmark index has risen by more than 24% this year, including a 3.7% increase this month after Trump’s victory and a second consecutive interest rate cut from the Federal Reserve aimed at tempering inflation. The S&P 500 has recorded over 50 all-time highs and added nearly $6 trillion in market value throughout 2021.

With Nvidia’s (NVDA) fiscal third-quarter earnings report now released and the uncertainty surrounding the election substantially resolved, stocks could be gearing up for another significant rally, or “melt-up,” that might enable the S&P 500 to surpass the record annual gain of 29.6% recorded in 2013. Nvidia’s stock performance considerably influences market dynamics due to its substantial weight in the S&P 500, the tech-heavy Nasdaq, and its recent inclusion in the Dow Jones Industrial Average.

The Weight of Nvidia in the Market

Kristian Kerr, head of macro strategy at LPL Financial, noted the significance of Nvidia, stating, “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.” He emphasized that Nvidia’s earnings have reached a level of importance comparable to major macroeconomic data releases. Although Nvidia has consistently exceeded earnings expectations, the immediate market reaction has been variable as investors dissect the results. Over the past decade, the average one-week move in Nvidia’s stock price post-earnings has been slightly below 11%.

Investor Sentiment and Economic Outlook

Current market sentiment indicates a strong risk appetite, as shown by record highs in bitcoin prices and a substantial influx of cash into U.S. equity funds. Bank of America’s latest Flow Show report corroborated this bullish sentiment, revealing that global investors are “all-in on Trump 2.0” and are positioning for continued growth in U.S. assets leading up to the January 20 inauguration.

Moreover, U.S. stock funds attracted an impressive $55.8 billion in new investments last week, marking the highest inflow since March. Positive signals also emerged from the broader economy, with Walmart forecasting a robust holiday season and the Atlanta Fed’s GDPNow tool projecting a growth rate of 2.6% for the current quarter—a benchmark that many global economies aspire to in the recovery phase post-pandemic.

Corporate Earnings Driving Gains

Corporate earnings have played a critical role in propelling the market’s late-autumn surge. Analysts estimate that third-quarter profits for the S&P 500 will increase by 8.8% year-over-year to approximately $527.4 billion, with projections for a 9.8% rise in the fourth quarter, according to LSEG data. Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments, remarked, “Earnings are outpacing the macroeconomy as companies expand margins faster than revenue growth,” reinforcing the idea that productivity gains are contributing positively to market outcomes.

Potential Headwinds and Future Considerations

Despite the encouraging outlook, significant headwinds could challenge the stock market rally. For one, U.S. stocks are currently priced at the highest multiples of forward earnings seen in over five years. Moreover, inflation risks could dampen prospects for a December interest rate cut from the Federal Reserve. According to the CME Group’s FedWatch, the likelihood of a quarter-point reduction is about 50%, and comments from Fed officials indicate a cautious approach as they assess the ramifications of new tax, tariff, and immigration policies introduced by the Trump administration.

Geopolitical tensions are another wildcard affecting market dynamics, with recent conflicts involving Russia and Ukraine posing a potential escalation in hostilities. Furthermore, the ongoing conflicts in the Middle East may spark more significant confrontations.

Conclusion

In summary, while the path to achieving a record annual gain for the S&P 500 appears promising, it is essential for investors to remain vigilant about the underlying economic conditions and potential challenges on the horizon. Factors such as corporate earnings trends, economic growth projections, and shifts in monetary policy will play essential roles in shaping market sentiment and outcomes for the remainder of the year.

Overall, Wall Street analysts are optimistic, with Wells Fargo recently raising its end-2025 price target for the S&P 500 to 6,700 points, citing expectations of deregulation to support profit margins. As Jan Szilagyi, CEO of Reflexivity, noted, “This is not a bearish market environment.”

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Nvidia Earnings Set to Propel S&P 500 Towards Record Annual Gains