Top Catalysts for the S&P 500 Index and SPY ETF in Q4

The S&P 500 Index experienced a strong performance in the third quarter, reaching a record high, driven by the robust Q2 results and the Federal Reserve’s interest rate cut.

This article identifies some of the top catalysts for the index and its ETFs, like SPY and VOO, in the final quarter of the year.

Third Quarter Earnings to Impact S&P 500 Index

One of the top catalysts for the S&P 500 Index in the fourth quarter will be the upcoming earnings season. It officially kicks off on November 14, when major banks like JPMorgan and Wells Fargo publish their results.

These earnings will be important as they will be the first ones to cover Donald Trump’s tariffs fully. Therefore, analysts expect the earnings growth to be relatively weaker than in the second quarter.

Data compiled by FactSet indicate that the average earnings growth is expected to be 7.9%. That would be lower than the average growth of 11.5% in Q2. Still, this growth will be the ninth consecutive quarter for the S&P 500 Index.

On the positive side, the S&P 500 Index has demonstrated its resilience over the past few years, regularly beating analyst estimates. Strong results indicate that the index may continue to grow in the coming months.

The FactSet report notes that Wall Street analysts expect the index to jump by 11% over the next 12 months. If this happens, it will jump to over $7,300, higher than the current $6,661.

Federal Reserve Interest Rates

The other important catalyst for the S&P 500 Index is the Federal Reserve, which is considering the pace of interest rate cuts this year.

The bank delivered the first interest rate cut of the year in September and hinted at further cuts later this year. However, after that, several Fed officials have sounded a warning about the pace of cuts, citing the elevated inflation rate.

For example, officials like Raphael Bostic, Beth Hammack, and Austan Goolsbee have noted that inflation remains significantly higher than the 2% target. Precisely, it has remained above this target for the past four and a half years. So, cutting rates aggressively may push prices higher.

The key catalyst for the first interest rate cut in the October meeting will be the upcoming US non-farm payrolls (NFP) data. It will come out on Friday this week if the US government shutdown does not happen.

A weak jobs report will be bullish for the S&P 500 Index and its ETFs like SPY and VOO. That’s because it will raise the possibility of the bank cutting interest rates.

Donald Trump’s Tariff Ruling

The other main catalyst for the S&P 500 Index and its ETFs will come from the judiciary, where the court will rule on the legality of Donald Trump’s tariffs. Two courts have already ruled that the tariffs were illegal, a move that the administration has appealed.

Ultimately, the case will likely move to the Supreme Court, which will have the final say. An end to Trump’s tariffs will have an impact on the economy and the S&P 500 Index. Ending the tariffs will leave the country vulnerable, as analysts expect the tariffs to reduce the federal debt by a trillion.

On the positive side, the end of these tariffs will likely lead to more gains in the stock market as companies boost their margins.

Artificial Intelligence Spending

Artificial intelligence (AI) tailwinds have driven the S&P 500 Index growth over the past few years. Companies like Microsoft, Amazon, Meta Platforms, and Oracle have spent billions in the sector.

This growth has helped these companies, together with others like Taiwan Semiconductor and Broadcom, become trillion-dollar giants.

The risk, however, is that some analysts are warning of an AI bubble and the imminent slowdown in spending. In its last earnings, Nvidia also warned that spending was slowing. As such, confirmation of a slowdown will hurt the S&P 500, especially now that its PE ratio has jumped to 23.