Is There a Buying Opportunity in the SPY ETF?

Despite the risks and headwinds, the signs point to a solid entry opportunity for the SPDR S&P ETF Trust NYSEARCA: SPY investors. The critical factor to remember is that the SPY ETF tracks the S&P 500 Index, so what drives one drives the other. In this case, it is a robust earnings outlook underpinned by AI, generational-quality valuations in leading stocks, and the potential for clearer conditions later this year that drives both.

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SPY Technicals Align With Trend-Following Opportunity

The SPY technicals are very bullish. The read begins with the weekly chart and trading volume, which is elevated on a trailing 12-month basis relative to the preceding 12, with volume spiking as price action declined in Q1. Price action in the first week of Q2 reflects buying, causing a peak in MACD that converges with the trend. The takeaway is that the March 2026 ETF price correction was weaker than the last correction, with volume rising in support of the market. Stochastic also shows a strong signal, aligning with the uptrend, with the short-term %D line forming a double bottom, crossing over the %K, and %K also rebounding.

The bottom line is that a sufficient number of technical signals have aligned to present a strong trend-following signal for technical traders, but one critical element is missing. The market remains below its 150-day EMA, indicating resistance from long-term holders, but it may evaporate quickly amid other factors.

Earnings Growth and Outlook Underpin S&P 500 and SPY Price Outlook

Earnings are the single most important factor for the S&P 500 and SPY uptrend. When earnings are growing, the index and ETF tend to trend higher; those uptrends tend to be stronger when growth and growth forecasts are strengthening. As it stands, the consensus forecast for S&P 500 earnings growth this year is nearly 17.5%.

Not only does 17.5% earnings growth represent a sequential acceleration from 2025, but the pace of revisions has also increased. Data reported by FactSet show improvement across all four quarters this year, with growth expected to accelerate from Q1 through Q3, peaking at over 20% and then holding steady at nearly 20% in Q4. This suggests a strong tailwind for market sentiment, and another catalyst is at play.

The market tends to underestimate the S&P 500 earnings growth potential, and the margin of error increased last year. Participants have structurally underestimated the strength of AI spending each quarter, and are likely to continue the trend in 2026. This sets the index up to outperform its already robust forecasts, potentially leading to a melt-up scenario as the year progresses.

NVIDIA (and Tech) Is the Likely Catalyst for a Broad Market Rally

There are numerous catalysts this year, but the most impactful will be NVIDIA NASDAQ: NVDA. It represents more than 7% of the index and is central to AI. It is expected to continue growing at a hyper pace, outperforming estimates, and issue solid guidance to continue the trends in place. More importantly, after several quarters of consolidation, profit-taking, and market rotation, the stock’s value is unreal.

Trading at just under 22X its current-year earnings forecasts in early April, the market places no premium on NVIDIA stock, the first time in about a decade that this has happened. In this scenario, NVIDIA’s upside potential ranges in the 50% range near term and in the multiple-hundred percent range long term. Blue-chip tech, including NVIDIA, tends to trade at 30X to 35X earnings at the peak of its cycle. With NVIDIA at 22X its current-year and just over 7X its 3035 forecast, a solid, outlook-affirming report can unleash a 50% upside, and as much as 400% upside over time as the company grows into its outlook.

The Risk Is Oil, Oil Is Hot and Drives Inflation

The biggest risk for the market is oil. Oil prices are up significantly from their lows and underpinning price spikes throughout the economy. Because oil prices are unlikely to fall significantly in the near-term, investors should expect another inflation shock. The risk is that the FOMC will not only back off its rate-reduction agenda but revert to a hawkish stance, raising the risk of rate hikes and recession.

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