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What You Need to Know About S&P 500 ETF Investing Right Now

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The S&P 500 is off about 17% this year. Heightened rising rate worries amid super-hawkish Fed cues, red-hot inflation, supply chain woes and the Russia-Ukraine war have dampened Wall Street this year. The index saw the worst start to a year since 1939. However, after a prolonged downfall, things appear to be changing for the S&P 500 Index.  

The index could be on the brink of an oversold rally, following a technical "buy" signal, according to Katie Stockton of Fairlead Strategies, as quoted on businessinsider.in. The buy signal, which is based on the moving average convergence divergence indicator, or MACD, represents the first buy signal since mid-March for the S&P 500, and ends the "sell" signal that flashed in early April.

Both the prior signals worked well for short-term traders, with the S&P 500 jumping as much as 8% after the mid-March buy signal, and the S&P 500 falling as much as 13% since the April sell signal, the businessinsider article noted. A separate article published on MarketWatch also revealed that solid insider buying indicates a 15% rally in the S&P 500 from here.

CNN’s Fear and Greed Index are currently in the “extreme fear” category based on market returns, junk bond spreads and other factors, as quoted on Forbes. If you follow Warren Buffett, you may find it a buying opportunity. Buffett suggests one to be greedy when others are fearful.

The earnings growth prospect is still high. The projected rise in S&P 500 earnings per share (out last month) this year stands at 8.9% compared with 8.1% at the end of March, according to S&P Global Market Intelligence, as quoted on the MarketWatch article.

Valuation is Not Dirt-Cheap Yet

The S&P 500 trades at around 20x earnings today, or 32x on a CAPE basis, which looks at the average of earnings over the past 10 years. Neither of those metrics is cheap over the long-term where the average multiple for the S&P 500 whether on a current or CAPE basis is about 15X earnings, per a Forbes article. The historical low of the index is closer to 5X.

ETFs to Watch

Against this backdrop, investors may track 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 play the growth part of the index with (SPYG - Free Report) and the value part of the index with (SPYV - Free Report) . SPDR Portfolio S&P 500 High Dividend ETF Fund (SPYD - Free Report) is a good bet for the dividend plays of the index. SPYD yields 4.80% annually.

Investors can also bet on 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) while the index is on an uptrend.

If the S&P 500 index shows a declining trend, then investors can play ProShares UltraPro Short QQQ (SQQQ - Free Report) , ProShares Short S&P500 (SH), ProShares UltraShort S&P500 (SDS - Free Report) and ProShares Short QQQ (PSQ).