The S&P 500 Index and its ETFs like VOO and SPY has wavered in the past few days as concerns about the artificial intelligence (AI) industry continues. It dropped to a low of $6,733, down from the year-to-date high of $6,920. So, is this the end of the VOO and SPY ETF rally?
AI, Federal Reserve, and valuation jitters
The SPX Index and its top ETFs, like VOO, SPY, and IVV have remained in a tight range in the past few weeks. Their attempts to rebound have all faltered in this period.
The main reason for the wavering is the rising concerns that we are in an AI bubble that could pop soon. Just this week, Lisa Su, AMD’s CEO warned that the ongoing AI investments were a gamble that may not pay off.
These fears explain why most AI stocks have plummeted this year. Oracle stock price has plunged by 37% from its highest point this year. NVIDIA’s stock has dropped from $212 earlier this month to the current $186. SoundHound stock has dived from $22 in October to $12.
Still, some analysts and experts believe that the AI boom has more room to run, citing the huge market size. For example, Jensen Huang, Nvidia’s boss pushed TSMC to hurry up chip production as he anticipates more demand.
The S&P 500 Index is also crashing because of the rising doubts that the Federal Reserve will cut interest rates in the coming meeting. Polymarket data shows that the odds of interest rate cuts have plunged to 53% today, down from 95% a few weeks ago.
The deteriorating odds of a Fed cut has helped to boost the US bond yields. Data shows that the ten-year has jumped to 4.123% from this month’s low of 3.9%. It has also formed an inverse H&S pattern, pointing to more gains over time.
The S&P 500 Index has also pulled back because of the ongoing valuations, especially among technology companies. For example, Palantir has a P/E multiple of a whopping as its market capitalization has jumped to over $400 billion. Tesla has a multiple of over 300.
On the positive side, the average S&P 500 Index P/E ratio is 22, a range it has remained at in the past few years.
Nvidia earnings is the next major catalyst
The next major catalyst for the S&P 500 Index and its ETFs like VOO and SPY is the upcoming Nvidia earnings, which will provide more color on its business trajectory. Nvidia earnings will also provide information on whether we are in an AI bubble or not.
Wall Street analysts are optimistic that the company will publish strong earnings. The average estimate among analysts is that its revenue will come in at $55 billion, up by 56% from the same period last year. Its earnings per share is expected to move to $1.25 from the previous 81 cents.
The other top earnings that will impact the S&P 500 Index next week will be Walmart, TJX, Intuit, and Home Depot.
On the positive side, the earnings season has been such a success, with the average earnings growth of the S&P 500 Index being 13.1%. This makes it the fourth consecutive quarter of double-digit growth.
S&P 500 Index technical analysis
The daily timeframe chart shows that the SPX Index has pulled back in the past few days. It dropped from a high of $6,920 earlier this month to the current $6,737.
The risk, however, is that the MACD and the Relative Strength Index have formed a bearish divergence pattern. This pattern often leads to more downside over time.
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