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Goldman Fans Can Reap Returns From S&P 500 ETFs in 2022

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The S&P 500 has now doubled from its COVID-19 bottom of 2,237.40 it touched on Mar 23, 2020. Now, it has reached the level of 4,682.80, with about 25% gains recorded this year. An awesome rally in tech stocks and solid U.S. economic data points were mainly responsible for the S&P 500’s achievement.

Goldman Sachs (GS - Free Report) this week said that it expects the S&P 500 to rise 9% to 5,100 by the end of 2022, as quoted on a Yahoo Finance article. If achieved, it would mark a 10% total return, including dividends. This makes a strong case for S&P 500 investing, which puts focus on the likes of SPDR S&P 500 ETF (SPY - Free Report) , iShares Core S&P 500 ETF (IVV - Free Report) and Vanguard S&P 500 ETF (VOO - Free Report) .

Inside the Investing Rationale of the S&P 500 for 2022

Goldman Sach’s chief equity strategist David Costin believes that corporate tax rates will probably remain unchanged next year, unlike many people’s fear that the Biden administration will raise it. S&P 500 earnings should grow by 8% in 2022 to $226 a share based on Kostin's modeling. Kostin sees sales for S&P 500 companies increasing by 9% year over year.

"Households own half of the $28 trillion in U.S. cash assets, an increase of $3 trillion since before the pandemic. We expect households will shift some of this capital into equities over time," said Kostin, per the Yahoo Finance article.

However, hurdles will exist for equities in 2022, mainly in the form of high inflation, a Fed policy tightening and the resultant rise in bond yields. The Fed will start QE tapering from this month and we could see a rise in rates too in 2022. This will likely go against the economic growth momentum and broad-based equity investing.

According to Goldman's data, the S&P 500 has historically offered an average 12-month return of 8% in environments of positive but slowing economic activity and rising interest rates. Still, an improving job market and rising industrial activities are a plus. Wall Street has a specific reason to cheer for 2022 as President Biden signed the $1-trillion infrastructure bill (read: 4 Sector ETFs to Make the Most of Infrastructure Bill).

Although consumer confidence is wavering due to high inflation, retail sales have been decent. Consumers seem to be splurging on buying homes, motor vehicles and major household durables. The survey also showed that the proportion of the population planning to go on vacation has shot up to the highest level since February 2020, as mentioned in a Reuters article.

The United States has largely relaxed travel restrictions and is reopening to completely vaccinated international travelers. The news has boosted enthusiasm for economic and travel recovery. In fact, airlines recently hinted at a solid travel trend.

If these were not enough, more companies are trying to come up with antiviral therapies. Recently, Pfizer (PFE - Free Report) announced that its experimental antiviral pill cut the rates of hospitalization and death for adults by 89%. Last month, Merck & Co. (MRK - Free Report) and partner Ridgeback Biotherapeutics LP submitted their experimental pill to regulators as a study revealed that it lowered the risk of getting seriously ill or dying by half in patients with mild-to-moderate COVID-19 (read: Are Small Caps the Best Bets for 2022? ETFs in Focus).

The S&P 500 earnings are likely to increase 8.5% for 2022 after an expected earnings growth of 44.6% for 2021. The revenue growth for 2022 is expected to be 6.9% following an expected 2021 revenue growth of 11.7%, per Zacks Earnings Trends issued on Nov 10, 2021.

ETFs in Detail


SPDR S&P 500 ETFfollows the S&P 500 Index, which is composed of five hundred selected stocks, all of which are listed on national stock exchanges and span over 25 separate industry groups.

Zacks Rank #2 (Buy) SPDR S&P 500 ETFcharges 9 bps in fees. Microsoft, Apple and Amazon hold the top three stocks of SPY. Information Technology (28.39%), Consumer Discretionary (12.80%), Healthcare (12.72%), Financials (11.18%) and Communication Services (10.77%) have a double-digit exposure to it.

iShares Core S&P 500 ETF

The iShares Core S&P 500 ETF seeks to track the investment results of the S&P 500 Index. IVV too has Zacks Rank #2.

iShares Core S&P 500 ETF charges 3 bps in fees and yields 1.24% annually. Sector and stock holdings in IVV are more-or-less similar as before.

Vanguard S&P 500 ETF

Vanguard S&P 500 ETFisyet another S&P 500-based ETF which has a Zacks Rank #2. Notably, Vanguard S&P 500 ETF charges 3 bps in fees and yields 1.23% annually.

Sector and stock weights of VOO are in line with the above-mentioned ETFs.

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