What’s going on here?
Nvidia's impressive second-quarter results weren’t enough to stop its share price from dipping, casting doubts over the rosy 2025 earnings forecasts for US stocks.
What does this mean?
The projected earnings growth for the S&P 500 in 2025 has climbed from 13.7% in April to 15.3%, significantly outpacing the 10.2% forecast for this year. This optimism hinges on the Federal Reserve navigating an economic soft landing and significantly lowering the fed funds rate by the end of 2024. Economic indicators such as a revised Q2 GDP growth of 3.0% and annual core PCE inflation for July coming in at 2.5% support this upbeat outlook. However, Nvidia’s Q2 performance signals that even minor missteps from tech giants could disrupt these high expectations. Despite nearly 80% of large US firms beating earnings expectations in Q2, only 60% exceeded sales forecasts – one of the lowest percentages in 17 quarters – raising red flags about overall market exuberance.
Why should I care?
For markets: Clouds over the crystal ball.
Market optimism for 2025 is precariously balanced on a series of ideal conditions – including a soft economic landing and robust tech sector earnings. Yet, Nvidia's recent stumble highlights the fragility of these assumptions. While tech earnings growth is projected at over 20%, excluding Nasdaq 100 companies shrinks this figure dramatically, underscoring the dependency on big tech giants for overall market health.
The bigger picture: A delicate dance with the future.
The broader economic cycle shows signs of cooling activity and a weakening labor market, which could undermine the ambitious earnings projections for 2025. While aggregate revenue for S&P 500 companies is expected to grow by 6% next year – almost 10 percentage points lower than the projected earnings growth – rising net interest expenses and weakening revenue growth, as highlighted by JP Morgan, could compress profit margins, adding further risks.
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Originally Posted September 3, 2024 – Nvidia's Stumble Raises Eyebrows Over Future Earnings Hype
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