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History Says S&P 500 Rally in Cards: ETFs in Focus

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The S&P 500 is off 18.2% 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.

Those who are worried about the S&P 500 market crash this year may find this piece of information useful. The S&P 500 has been higher three years later in eight out of nine cases in which the index has dropped 20% or more from an all-time high going back to 1957, according to research from Trust co-chief investment officer Keith Lerner, published on a Yahoo Finance article.

Stocks have returned on average 29% during those eight cases. Lerner's data shows the S&P 500 has increased 15% on average in the seven times stocks have tanked 20% or more from a high dating back to 1957.

Wall Street has seen the worst start of a year in 2022 in 50 years. Lerner pointed out more precisely that this is the third worst return at the halfway point for markets since 1950 and the weakest since 1970, as quoted on Yahoo Finance.

To Lerner's point, investors have re-priced stocks quickly this year to bake in sky-high inflation and a Federal Reserve’s faster interest rate hikes. The Atlanta Fed GDPNow model is now predicting a 2.1% shrinkage in Q2 U.S. economic output, following a 1.6% decline in Q1.

Still, earnings potential is decent. Per the Zacks Earnings Trends issued on Jul 6, 2022, the earnings of the index are projected to grow 1.8% in Q2, 7.2% in Q3 and 6.4% in Q4 of this year on revenue growth expectations of 9.7%, 8.9% and 6.7%, respectively. If you follow Warren Buffett, you may find it a buying opportunity. Buffett suggests one to be greedy when others are fearful.

ETFs to Watch

And if you followS&P 500’s historical explanation provided by Keith Lerner, you may want to tap S&P 500 ETFs. 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) (read: What You Need to Know About S&P 500 ETF Investing Right Now).

Investors can also play the growth part of the index with SPYG and the value part of the index with SPYV. 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 3.94% annually (read: Play Dirt-Cheap Dividend ETFs to Fight More Fed Rate Hikes).

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) 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) and ProShares Short QQQ (PSQ).

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