Nvidia Earnings THE Event In The S&P 500 This Week

S&P 500 Digests Earnings Reports

As the poster child for AI and a significant contributor to U.S. economic growth, Nvidia’s earnings on Wednesday will likely shape the direction of the S&P 500 for the remainder of the month.

Back in January, we cautioned:

“Is AI coming? Yes.

Will AI be more significant than the Internet? Yes.

However, that alone will not drive mega-cap performance in 2025. Investors want to see returns on AI investment by the end of 2025 or early 2026. They want to see business models and lifestyle changes driven by AI in the next 12 to 15 months that deliver returns on investment.” 

While the time frame may stretch, our view hasn’t changed and we remain cautious.

While earnings for S&P 500 stocks reported for quarter three were broadly positive, this is not reflected in price action.

Mega-cap stocks, as we predicted, have seen stock prices pull back in November on the back of reported earnings:

Amazon -9%, Microsoft -8%, Tesla -16%, Meta -20%, Google -5%.

In recent posts, we have outlined concerns about mega-cap AI-related capital expenditures and data center expansion plans.

Those concerns are gaining momentum in the market.

Capital Expenditure

While mega-cap stocks reported good earnings and solid guidance, the market is beginning to question the capital expenditure projections for AI development and the lack of clarity about when there will be a return on that investment.

That, coupled with the current liquidity crunch and recent FED commentary that has dampened expectations for an interest rate cut in December, is weighing on market sentiment. 

The unwind in mega-cap stocks could accelerate as stretched valuations collide with weakening liquidity and economic uncertainty.

Market behaviour is revealing a decisive shift as major indices begin to break down from stretched technical levels.

Volatility remains unusually suppressed despite growing stress signals, and the recent rollover in equities, particularly semiconductors, suggests that the multi-year momentum trade is losing structural support.

Sharp divergences between implied and actual volatility, weakening breadth, and the failure of key leadership sectors indicate that the market is entering a corrective phase rather than a temporary pause.

So, are we on the verge of a correction in the S&P 500?

Possibly.

That aligns with our April view that the S&P 500 will likely pull back further, and potentially more profoundly, in the second half of the year.

That’s not to say we are bearish in the long term. A correction would be healthy and likely trigger a liquidity injection from the FED and Treasury.

S&P 500 Key Levels

From a technical perspective, 6840 remains a key level. The S&P 500 needs to close and confirm above this level to signal that upside momentum is back in play.

Given that momentum remains weak, the balance of probability suggests choppy consolidation, with a test of the options low level at 6670 more likely.