S&P 500 Posts a New Record High on a Resilient US Economy

U.S. equities advanced on Thursday, with the S&P 500 reaching a new all-time high, primarily driven by an upward revision of Q2 GDP to 3.3% and a decline in weekly jobless claims, signaling economic resilience. Strength in software and chip stocks provided further market impetus, although gains were tempered by disappointing earnings from Hormel Foods and an underwhelming sales forecast from Nvidia. While bond yields declined on dovish Federal Reserve commentary, new tariff threats from former President Trump on advanced technology and expanded steel/aluminum imports present a potential macroeconomic headwind, despite robust Q2 S&P 500 earnings growth tracking at 9.1% year-over-year.

Analysis

U.S. equity markets advanced, with the S&P 500 achieving a new all-time high, primarily propelled by signs of economic resilience. The upward revision of Q2 GDP to +3.3% and a drop in weekly initial unemployment claims to 229,000 bolstered investor confidence. Market strength was concentrated in the technology sector, particularly software and chipmakers; Snowflake (SNOW) surged over 18% and Pure Storage (PSTG) rallied 31% on strong revenue results and upgraded full-year forecasts. However, gains were capped by specific earnings disappointments and macro concerns. Hormel Foods (HRL) plunged over 13% after missing Q3 EPS estimates and providing a weak Q4 outlook. Notably, bellwether Nvidia (NVDA) declined -0.79% on a Q2 data center revenue miss and an underwhelming forecast, signaling potential headwinds for high-valuation AI-related stocks. Concurrently, escalating trade policy risk persists, with new tariff threats on advanced technology and recent expansions of steel and aluminum tariffs. Despite these cross-currents, the overall Q2 earnings season has been robust, with S&P 500 earnings growth tracking at +9.1% year-over-year, far exceeding initial +2.8% expectations. Federal funds futures are pricing in an 86% probability of a 25 bp rate cut in September, which has pushed the 10-year T-note yield down to a 2-week low of 4.201%, further supporting equity valuations.

Key Decisions for Investors

• Given the divergence between strong overall earnings and specific high-profile misses like Nvidia and Hormel, investors should prioritize companies demonstrating strong execution and upwardly revised guidance, such as those seen in the software and storage sectors.
• Closely monitor upcoming tariff developments, as threats of new duties on advanced technology and the potential for the average U.S. tariff to rise to 15.2% represent a significant macroeconomic risk that could impact corporate margins and supply chains.
• While the market is pricing in an 86% chance of a September Fed rate cut, the combination of stronger GDP and a stable labor market could limit the scope of monetary easing, warranting caution for positions heavily dependent on a dovish policy pivot.
• The significant underperformance of companies like Cooper Cos (-12%) and Veeva Systems (-7%) on guidance cuts and margin misses underscores the market's low tolerance for negative revisions; it is prudent to review holdings that face similar pressures or have yet to report.