Will Nvidia results push stock market rally higher despite Trump

The S&P 500 could hit new record highs in a ‘melt-up’ scenario, with Nvidia’s quarterly results a potential catalyst.

The US benchmark now trades just a few percentage points from its record high and that point could be tested soon. Picture: Michael M. Santiago/Getty Images/AFP

Fear of missing out on the rally in stocks is now palpable.

The S&P 500 has bounced about 22 per cent from its April low and is again on the cusp of a “bull market” defined as a 20 per cent rise on a daily close basis.

The US benchmark now trades just a few percentage points from its record high and that point could be tested soon.

It was only two weeks ago that Bank of America’s survey of global fund managers found that the big fund managers were a net 38 per cent underweight US stocks, the most in two years.

BofA’s survey, taken just before the US-China trade talks in Geneva, was “bearish enough to suggest pain trade modestly higher”, the bank’s strategist Michael Hartnett wrote at the time.

Perhaps it’s taking time for them to change their views and increase their weightings.

Of course once they have done so, the stock market could be vulnerable to another selloff. But it could first punch through to new record highs in a “melt-up” scenario.

Nvidia’s quarterly results and outlook after the US close on Wednesday could be a catalyst.

When the US-China trade truce and accompanying removal of retaliatory tariffs was announced two weeks ago, the S&P 500 jumped 5.5 per cent within days.

Last Friday’s announcement by US President Donald Trump of a 50 per cent on EU imports from June 1 caused a minor scare but that abated early this week when he delayed that tariff until July 9 and the EU agreed to “fast track” trade talks.

Markets appear to be getting used to Trump’s brinkmanship and also starting to believe that he will actually succeed in achieving tariff increases for the US that don’t reignite the trade war.

IG market analyst Tony Sycamore says the TACO acronym -Trump Always Chickens Out - is rapidly gaining popularity after this week’s tariff backdown. Not that the EU tariff threat caused anything like the April selloff in US assets that led to the reciprocal tariff pause and US-China trade truce.

“We do hasten to add the overall level of new tariffs this year is substantially higher, at around 15 per cent, compared to the beginning of the year at approximately 3 per cent, which is still expected to provide a drag on growth and show up at some stage in the hard data,” Mr Sycamore said.

It’s too early to expect tariff impacts to show up in the hard data and Bloomberg’s consensus-based US recession probability estimate has been at an elevated 40 per cent since late April.

But some fund managers say recent fears of an imminent US economic downturn are premature given that government spending will remain consistent with last year’s levels or even higher.

According to Quay Global Investors principal and portfolio manager Chris Bedingfield robust consumer spending will support economic growth and company profits.

Meanwhile the US Federal Reserve should ultimately look past a one-off inflation boost from tariffs.

“The US central bank will watch closely the impact of Trump’s tariffs on economic growth and it may even cut interest rates this year if activity slows too much, which could support the prices of listed real estate assets,” Mr Bedingfield said.

In the absence of any other fiscal adjustment, tariffs will act as a fiscal drag, slowing the economy and reducing profits and potentially consumer spending. But, in what is perceived to be an overheated economy, it may give scope for the Fed to resume interest rate cuts before too long.

Bedingfield concedes that economic policy uncertainty could delay private investment, compounding the impact of tariffs, resulting in a more meaningful slowdown in the US economy.

But in that situation, the Fed should look past a one-off inflation impact from tariffs to a deflationary impact from an economic slowdown also caused by tariffs.

“This view was recently supported by the US Federal Reserve in last month’s monetary policy statement stating that they were assuming that tariffs would cause a one-time jump in prices, rather than a more sustained increase, and that it is also a hit to growth,” he said.

While the Fed revised up its year end inflation forecast to 2.7 per cent, it also revised down its year end economic growth forecast to 1.7 per cent from 2.1 per cent.

Bedingfield is also reasonably upbeat on government spending despite expectations of crackdown from the cost-cutting measures developed by the new Department of Government Efficiency.

“Despite the concerns of government cuts and drive for government efficiency via ’DOGE’, there has been no deceleration of government spending or net deficit so far in the first quarter,” he said.

“In fact, relative to the same time in 2024, gross and net spending have increased.

“Despite calls for increased government efficiency via DOGE and the elimination of government waste, the recently-passed stopgap funding bill known as a Continuing Resolution extended most current funding for the next six months, and increased spending on defence and border security.”