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Wall Street was extremely upbeat last week with the S&P 500 (up 2.82%), the Dow Jones (up 1.64%), the Nasdaq (up 3.87%) and the Russell 2000 (up 3.24%) offering stellar gains. The S&P 500 even hit the 4,000-mark last week. Solid U.S. economic data points led to this upsurge. Tech stocks were mainly responsible for the S&P 500’s achievement.
The March jobs data came in better than expected. Revisions added 156,000 jobs to the totals for January and February. The U.S. manufacturing index jumped to a 38-year high. Last week also witnessed President Joe Biden’s $2.3 trillion infrastructure plan, which contributed to the S&P 500’s rally (read: ETFs to Win on Biden's Infrastructure Plan).
Now this leaves a big question about what lies ahead for the S&P 500 ETFs. Will the S&P 500 gain further or move rangebound?
S&P 500 Becoming IT-Heavy
The S&P 500 puts 26.89% of the fund in Information Technology. Apple (5.71%), Microsoft (5.37%) and Amazon (3.98%) are its top three holdings. About 26.38% of the fund is held in the top-10 section, out of which 22.35% goes to Information Technology.
With tech stocks having taken a beating in the first quarter of 2021 despite having upbeat long-term potential, we expect a rebound in the tech segment. This is especially true given the rising virus cases globally which will prolong the work-learn-shop-from-home culture (read: Don't Let Underperformance in Growth ETFs Fool You).
Several countries are enacting/extending lockdowns, which should prove beneficial for tech stocks in the near term and help the S&P 500 to rise higher. Overall, digitization is part and parcel of the modern era. The sector holds strong potential on the fast emergence of the fourth industrial revolution.
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 - Free Report) , we will see the fund returning 10.3% during that period while the value ETF (SPYV - Free Report) 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 12.43% weight in the S&P 500) and industrials (which gets 8.80% in the S&P 500) tend to do better in a rising rate environment. The industrial sector has specifically been on an uptrend.
Healthcare to Remain Well Positioned
The healthcare sector holds 12.82% of the fund. The sector is defensive in nature. Amid the ongoing health emergency, no one can ignore the necessity of this sector, let alone the sector’s durability amid the growing need for medication and treatments for other critical diseases (read: 4 Sector ETFs to Watch for Gains in Q2).
Market Buzz Says More Upside Ahead
In mid-March, JPMorgan's chief global markets strategist said that “strong earnings and stabilizing yields” should drive the stock market higher. He then had a 2021 year-end price target of 4,400 for the S&P 500, and sees yields to calm and boost stocks including technology stocks higher, as quoted on Business Insider.
In early March, UBS said that stimulus and pent-up consumer spending would push the S&P 500 to 4,250, as quoted on CNBC.Wall Street bull Ed Yardeni sees the S&P 500 year-end target as 4,300. For 2022, it’s 4,800, as quoted on CNBC.
Any Wall of Worry?
While the fear of tax hikes is unnerving investors, talks are doing rounds that the actual tax hike may come across as less than what has been proposed by President Biden. Also, the President made it clear that the tax burden on anyone making less than $400,000 per year will not be increased. Hence, tax hike should not play a great role in driving the markets down in the coming days (read: Tax Hike Not a Big Concern? Play S&P 500 ETFs).
ETFs to Watch
Against this upbeat backdrop, investors may track the S&P 500 ETFs like Vanguard S&P 500 ETF (VOO - Free Report) , iShares Core S&P 500 ETF (IVV - Free Report) and SPDR S&P 500 ETF (SPY - Free Report) . Investors can also bet on the leveraged S&P 500 ETFs like Direxion Daily S&P 500 Bull 3X Shares (SPXL - Free Report) , ProShares Ultra S&P500 (SSO - Free Report) and ProShares UltraPro S&P500 (UPRO - Free Report) .
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S&P 500 Tops 4,000: Are ETFs Awaiting More Gains?
Wall Street was extremely upbeat last week with the S&P 500 (up 2.82%), the Dow Jones (up 1.64%), the Nasdaq (up 3.87%) and the Russell 2000 (up 3.24%) offering stellar gains. The S&P 500 even hit the 4,000-mark last week. Solid U.S. economic data points led to this upsurge. Tech stocks were mainly responsible for the S&P 500’s achievement.
The March jobs data came in better than expected. Revisions added 156,000 jobs to the totals for January and February. The U.S. manufacturing index jumped to a 38-year high. Last week also witnessed President Joe Biden’s $2.3 trillion infrastructure plan, which contributed to the S&P 500’s rally (read: ETFs to Win on Biden's Infrastructure Plan).
Now this leaves a big question about what lies ahead for the S&P 500 ETFs. Will the S&P 500 gain further or move rangebound?
S&P 500 Becoming IT-Heavy
The S&P 500 puts 26.89% of the fund in Information Technology. Apple (5.71%), Microsoft (5.37%) and Amazon (3.98%) are its top three holdings. About 26.38% of the fund is held in the top-10 section, out of which 22.35% goes to Information Technology.
With tech stocks having taken a beating in the first quarter of 2021 despite having upbeat long-term potential, we expect a rebound in the tech segment. This is especially true given the rising virus cases globally which will prolong the work-learn-shop-from-home culture (read: Don't Let Underperformance in Growth ETFs Fool You).
Several countries are enacting/extending lockdowns, which should prove beneficial for tech stocks in the near term and help the S&P 500 to rise higher. Overall, digitization is part and parcel of the modern era. The sector holds strong potential on the fast emergence of the fourth industrial revolution.
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 - Free Report) , we will see the fund returning 10.3% during that period while the value ETF (SPYV - Free Report) 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 12.43% weight in the S&P 500) and industrials (which gets 8.80% in the S&P 500) tend to do better in a rising rate environment. The industrial sector has specifically been on an uptrend.
Healthcare to Remain Well Positioned
The healthcare sector holds 12.82% of the fund. The sector is defensive in nature. Amid the ongoing health emergency, no one can ignore the necessity of this sector, let alone the sector’s durability amid the growing need for medication and treatments for other critical diseases (read: 4 Sector ETFs to Watch for Gains in Q2).
Market Buzz Says More Upside Ahead
In mid-March, JPMorgan's chief global markets strategist said that “strong earnings and stabilizing yields” should drive the stock market higher. He then had a 2021 year-end price target of 4,400 for the S&P 500, and sees yields to calm and boost stocks including technology stocks higher, as quoted on Business Insider.
In early March, UBS said that stimulus and pent-up consumer spending would push the S&P 500 to 4,250, as quoted on CNBC.Wall Street bull Ed Yardeni sees the S&P 500 year-end target as 4,300. For 2022, it’s 4,800, as quoted on CNBC.
Any Wall of Worry?
While the fear of tax hikes is unnerving investors, talks are doing rounds that the actual tax hike may come across as less than what has been proposed by President Biden. Also, the President made it clear that the tax burden on anyone making less than $400,000 per year will not be increased. Hence, tax hike should not play a great role in driving the markets down in the coming days (read: Tax Hike Not a Big Concern? Play S&P 500 ETFs).
ETFs to Watch
Against this upbeat backdrop, investors may track the S&P 500 ETFs like Vanguard S&P 500 ETF (VOO - Free Report) , iShares Core S&P 500 ETF (IVV - Free Report) and SPDR S&P 500 ETF (SPY - Free Report) . Investors can also bet on the leveraged S&P 500 ETFs like Direxion Daily S&P 500 Bull 3X Shares (SPXL - Free Report) , ProShares Ultra S&P500 (SSO - Free Report) and ProShares UltraPro S&P500 (UPRO - Free Report) .
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>