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Guide to the S&P 500 ETF Investing – Zacks Investment Research

The S&P 500 has been hovering around 4,449.49 at the time of writing, down only 7.7% from the all-time high. Solid U.S. economic data points, a boost in fiscal policies, vaccine distribution and pent-up …….

The S&P 500 has been hovering around 4,449.49 at the time of writing, down only 7.7% from the all-time high. Solid U.S. economic data points, a boost in fiscal policies, vaccine distribution and pent-up demand helped the index. Tech stocks were mainly responsible for the S&P 500’s monumental achievement last year.

Since its inception in 1993, the fund SPDR S&P 500 ETF (SPY Free Report) is up 10.3%, with a 14.40% standard deviation. The index is down 6.6% this year and has been up 7.8% past year. The risk-off trade sentiments emanated from the Russia-Ukraine war and high inflationary pressure led to the lackluster performance of the S&P 500 this year.

Now, this leaves a big question about what lies ahead for the S&P 500 ETFs. This is especially true given that rising rate worries are prevalent in the U.S. market.

Will the S&P 500 gain further or move rangebound?

Gradual Rise in Rates Should Favor Cyclical Stocks

In the recent past, we have seen stocks withstanding even the 3% benchmark yield. For instance, the benchmark U.S. treasury yield touched 3.24% on Nov 8, 2018, having started the year at 2.46%. If we track the performance of the S&P 500 growth ETF (SPYG), we will see the fund returning 10.3% during that period while the value ETF (SPYV) was down 0.5%.

Hence, one should not fear rising rates before investing in the current market. Normally, cyclical sectors like consumer discretionary (which gets 11.73% weight in the S&P 500) and industrials (which gets 7.77% in the S&P 500) tend to do better in a rising rate environment.

Upbeat Earnings Potential

Per the Zacks Earnings Trends issued on Apr 6, 2022, the earnings of the index are projected to grow 3.2% in Q1, 2.8% in Q2, 7.1% in Q3 and 6.2% in Q4 of this year on revenue growth expectations of 10%, 8.4%, 7.6% and 5.3%, respectively.

S&P 500 Becoming IT-Heavy

The S&P 500 currently puts 26.83% of the fund in Information Technology. Apple (6.89%), Microsoft (5.73%) and Amazon (3.55%) are its top three holdings. About one-fourth of the fund is held in the top-10 section, out of which more than 20% goes to Information Technology. With tech stocks having upbeat long-term potential, the S&P 500 has strong chances of outperformance over the medium term.

This is especially true given the rising virus cases in various parts of the globe that might prolong the work-learn-shop-from-home culture. Overall, digitization is part and parcel of the modern era. The sector holds strong potential on the fast emergence of the fourth industrial revolution.

Investors should note …….

Source: https://www.zacks.com/stock/news/1901844/guide-to-the-sp-500-etf-investing

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