Market Extra

U.S. stocks avoided an ‘earnings apocalypse’ in November. But one final test looms on Tuesday.

Stocks may have dodged an “earnings apocalypse,” but they still need to get through Nvidia Corp. earnings on Tuesday.

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U.S. stocks have managed to avoid an “earnings apocalypse” this month, potentially permitting the market to continue marching higher into the end of 2023, according to one top Wall Street strategist.

But one final test looms on Tuesday, when chipmaker giant and “Magnificent Seven” member Nvidia Corp. NVDA, +1.95% reports its results.

Read more: ‘Magnificent Seven’ stocks enjoyed a blistering 2023. Here’s what it would take for that rally to spill over into 2024.

According to FactSet data, 82% of S&P 500 companies have exceeded expectations for earnings growth, which is above the five-year average of 77%.

What’s more, FactSet’s blended-earnings growth figure from Friday shows profits for S&P 500 firms have grown by 4.3%. If this is the actual growth rate for the quarter, it would mark the first quarter of year-over-year earnings growth since the third quarter of 2022.

This is an “impressive feat,” said BMO’s Brian Belski, especially in light of the pessimism around stocks when the third-quarter reporting season began in mid-October.

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Stronger-than-expected earnings could help stocks climb a “wall of worry” heading into the end of the year, Belski added.

On Tuesday, investors will hear from Nvidia Corp., which some have described as the most important stock of 2023. The chip maker’s prior two earnings reports triggered huge swings in Nvidia shares, including one of the biggest intraday increases in market capitalization for any U.S. stock.

Whether the AI darling and chip-making giant succeeds in surpassing Wall Street’s already-lofty expectations could have serious ramifications for the broader market, Matt Maley, chief market strategist at Miller Tabek + Co., said in emailed commentary.

See: This one stock could potentially undo the 2023 rebound if it falls another 10% as one analyst expects

“NVDA has been the most important stock in the tech sector this year…and it has seen very large moves after they reported each of the last two quarters,” Maley said. “Therefore, how it reacts to this week’s earnings report is going to be extremely important for the stock.”

See: Lessons for next time after Nvidia’s stock didn’t surge, and options tanked, following blowout earnings

Given the importance of Nvidia’s results, investors have good reason to sit on their hands until the numbers are out, Maley added.

Shares of chip maker Nvidia Corp. are up more than 240% this year, according to FactSet data, helped by this year’s AI boom.

As MarketWatch reported earlier, the chipmaking giant is facing a high bar when it reports after the bell on Tuesday. That could lead to a repeat of what happened in August, when Nvidia’s earnings beat Wall Street estimates by 29.7%, but the stock still sank the following day, as investors determined that strong earnings were already priced in.

See: Nvidia is expected to be the biggest contributor to Q3 corporate profits. ‘The bar is very high,’ analyst says

To be sure, a disappointing reaction to Nvidia’s results might not mean that the November rally is destined to reverse. As Belski sees it, seasonal patterns and a slow but steady improvement in the number of stocks participating in the rally could help push the market even higher from here.

All three major U.S. indexes were trading in the green on Monday, with the S&P 500 SPX up 0.4% in recent trade, while the Nasdaq Composite COMP was up 0.3%, and the Dow Jones Industrial Average DJIA was up 100 points, or 0.3%, at 35,048.