The S&P 500 Index and the VOO ETF have largely stagnated over the past two months as some of their biggest constituents, including Nvidia and Meta Platforms, have pulled back. The index was trading at 7,537, up 20% from its lowest level this year, and several key technical and fundamental factors suggest it has further upside potential.

S&P 500 Index and VOO may benefit from earnings growth

A key catalyst for the SPX Index and its ETFs like VOO and SPY is that corporate earnings are expected to do well this year despite the US-Iran conflict. 

With the earnings season starting next week, FactSet estimates that the earnings growth will be 23.3%. If this is correct, it will be the second consecutive quarter in which earnings growth was above 20%. 

History suggests that the final earnings growth figure is usually higher than the estimate. For example, Q1’s earnings growth of over 28% was higher than the expected 15%. 

There are signs that earnings growth is accelerating. For example, Micron’s results showed that its revenue grew by over 300% in its third fiscal quarter, with management expecting the Q4 figure to be $50 billion.

Estimates are that some of the biggest US companies will publish robust revenue and earnings growth. For example, the consensus among analysts is that Nvidia’s revenue will come in at $91.73 billion, up by 96.2% YoY. AMD’s revenue is estimated to jump by 46.7% YoY, while Marvell is expected to grow by 35%.

S&P 500 Index is undervalued

The other bullish case for the index is that its valuation is not extreme even after the recent surge. Data compiled by FactSet shows that its forward P/E ratio is 20.4, slightly above the five-year average of 19.9 and the ten-year average of 19. 

This valuation metric, coming at a time when its earnings growth is accelerating, suggests that the index may continue doing well over time. The valuation may also push more people from the bond market to stocks.

Analysts are bullish on US stocks

Meanwhile, top analysts are bullish on US stocks, while admitting that there will be short-term volatility. In a statement on Monday, Morgan Stanley’s Mike Wilson predicted that semiconductor companies will go through a correction as investors rotate to hyperscalers. He maintains that the S&P 500 Index will end the year higher than where it is today.

https://www.youtube.com/watch?v=11wpC5o2KUM

Other top analysts have boosted their S&P 500 Index forecast for the year. Oppenheimer predicts that the index will surge to $8,100, while Goldman Sachs sees it rising to $8,000, helped by earnings growth. The bank’s top analyst wrote:

“We believe there is upside risk to consensus capex estimates in 2027. Analysts have been too conservative during each of the past three years.”

Falling inflation may cap Fed rate hikes

In the last FOMC meeting, officials hinted that they would support higher rates later this year. However, there are signs that inflation is starting to move downwards, which may cap rate hike expectations. 

Crude oil prices are falling, while the ten-year breakeven inflation rate dropped to 2.24% from the year-to-date high of 2.47%. At the same time, the recent weak US nonfarm payrolls and PMI numbers mean that the bank may be under pressure not to hike, a move that would support a pause. 

Technicals are supportive of the S&P 500 Index

SPX Index chart | Source: TradingView

The daily chart shows that the index has slowly formed a symmetrical triangle in the past two months. This triangle is forming after it surged from $6,312 to a high of $7,621, signaling that it may be a bullish pennant pattern. 

The index remains above the 50-day and 100-day moving averages. Therefore, there is a likelihood that it will pump, and cross the all-time high of $7,621.

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