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In the first half of 2023, Wall Street delivered an upbeat performance, with the S&P 500, the Nasdaq and the Dow Jones gaining about 14%, 29.5% and 2.4%, respectively. Better-than-expected corporate earnings and the AI boom were the key trends in the first half.
However, the wining trend faltered in the second half. In July, the S&P 500 and the Nasdaq marked their fifth successive positive month, only to register flat performances in August. Wall Street's vigor waned due to a sequence of bank downgrades and expectations of higher-for-longer interest rates.
September was also not sturdy. As a result, the third quarter was an average-to-downbeat period for investors, mainly due to rising rates. But the feeble trend continued even in the fourth quarter of 2023, with stocks registering a considerable decline in October (read: Top and Flop Industry ETFs of Q3).
Hence, it is obvious that investors are scratching their heads to find out what lies ahead in the final two months of the year, which forms the all-important holiday season. Over the past decade, the fourth quarter of the year has actually been the best for the stock market, with the Dow, S&P 500 and Nasdaq up at least 4% on average, per a CNBC article(read: 4 Top-Ranked Sector ETFs to Buy for Q4).
The S&P 500 had traded positively 80% of the time, according to a CNBC analysis of Kensho, a market data analysis platform. The Dow Jones Industrial Average had added 5% in fourth quarters over the past 10 years, trading positive 80% of the time.
S&P 500 Enters Correction Zone: Will It Gain/Lose Ahead?
The S&P 500 has fallen 10% since the start of July. The autumn pullback in the stock market sent the S&P 500 into a correction territory and made the index record its worst two-week decline of the year due to rising rates.
, Bank of America believes that the S&P 500 could decline another 5% and test a critical support level that has previously marked the bottom. Agreed, the Fed is likely to enact a rate hike in November. Inflationary pressure, rising rate worries and geopolitical crisis are present. But those threats are currently priced in the valuation. Moreover, inflation is falling and rates are peaking.
Hence, according to Oppenheimer's chief investment strategist John Stoltzfus, the S&P 500 is due for a massive rally by the end of the year, as the Fed is eyeing a dial-back its rate hike momentum, as quoted on Business Insider. In an interview with CNBC on Thursday, Stoltzfus reiterated his S&P 500 price target of 4,900 by the end of the year, marking about a 19% rally in the final two months of the year.
Markets are expecting interest rate cuts by mid-next year, with investors pricing in an 80% chance that rates could be lower than their current level by July 2024, according to the CME FedWatch tool. That could be bullish for stocks, considering that rate hikes wreaked havoc on the S&P 500 down heavily in 2022.
Time for Buy the Dip?
There are signs that investors are starting to take advantage of the recent slump in mega-cap tech stocks, with BofA's Michael Hartnett observing that the tech sector witnessed its largest inflow in eight weeks after investors purchased $2.0 billion worth of stocks.
At the current level, S&P 500 ETF – SPDR S&P 500 ETF Trust SPY – invests more than 26% in Magnificent Seven tech stocks (i.e., Apple, Alphabet, Amazon, Microsoft, Meta, Nvidia and Tesla). Hence, any rally in these biggies will help the S&P 500 recover losses faster enough (read: Guide to the Magnificent Seven Stocks & ETFs Investing).
ETFs in Focus
Against this upbeat backdrop, if you have faith in the potential recovery of Wall Street, 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 Trust (SPY - Free Report) .
Investors can also play the growth part of the index with SPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report) and the value part of the index with SPDR Portfolio S&P 500 Value ETF (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.
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S&P 500 in Correction Zone: Time to Buy ETFs?
In the first half of 2023, Wall Street delivered an upbeat performance, with the S&P 500, the Nasdaq and the Dow Jones gaining about 14%, 29.5% and 2.4%, respectively. Better-than-expected corporate earnings and the AI boom were the key trends in the first half.
However, the wining trend faltered in the second half. In July, the S&P 500 and the Nasdaq marked their fifth successive positive month, only to register flat performances in August. Wall Street's vigor waned due to a sequence of bank downgrades and expectations of higher-for-longer interest rates.
September was also not sturdy. As a result, the third quarter was an average-to-downbeat period for investors, mainly due to rising rates. But the feeble trend continued even in the fourth quarter of 2023, with stocks registering a considerable decline in October (read: Top and Flop Industry ETFs of Q3).
Hence, it is obvious that investors are scratching their heads to find out what lies ahead in the final two months of the year, which forms the all-important holiday season. Over the past decade, the fourth quarter of the year has actually been the best for the stock market, with the Dow, S&P 500 and Nasdaq up at least 4% on average, per a CNBC article(read: 4 Top-Ranked Sector ETFs to Buy for Q4).
The S&P 500 had traded positively 80% of the time, according to a CNBC analysis of Kensho, a market data analysis platform. The Dow Jones Industrial Average had added 5% in fourth quarters over the past 10 years, trading positive 80% of the time.
S&P 500 Enters Correction Zone: Will It Gain/Lose Ahead?
The S&P 500 has fallen 10% since the start of July. The autumn pullback in the stock market sent the S&P 500 into a correction territory and made the index record its worst two-week decline of the year due to rising rates.
, Bank of America believes that the S&P 500 could decline another 5% and test a critical support level that has previously marked the bottom. Agreed, the Fed is likely to enact a rate hike in November. Inflationary pressure, rising rate worries and geopolitical crisis are present. But those threats are currently priced in the valuation. Moreover, inflation is falling and rates are peaking.
Hence, according to Oppenheimer's chief investment strategist John Stoltzfus, the S&P 500 is due for a massive rally by the end of the year, as the Fed is eyeing a dial-back its rate hike momentum, as quoted on Business Insider. In an interview with CNBC on Thursday, Stoltzfus reiterated his S&P 500 price target of 4,900 by the end of the year, marking about a 19% rally in the final two months of the year.
Markets are expecting interest rate cuts by mid-next year, with investors pricing in an 80% chance that rates could be lower than their current level by July 2024, according to the CME FedWatch tool. That could be bullish for stocks, considering that rate hikes wreaked havoc on the S&P 500 down heavily in 2022.
Time for Buy the Dip?
There are signs that investors are starting to take advantage of the recent slump in mega-cap tech stocks, with BofA's Michael Hartnett observing that the tech sector witnessed its largest inflow in eight weeks after investors purchased $2.0 billion worth of stocks.
At the current level, S&P 500 ETF – SPDR S&P 500 ETF Trust SPY – invests more than 26% in Magnificent Seven tech stocks (i.e., Apple, Alphabet, Amazon, Microsoft, Meta, Nvidia and Tesla). Hence, any rally in these biggies will help the S&P 500 recover losses faster enough (read: Guide to the Magnificent Seven Stocks & ETFs Investing).
ETFs in Focus
Against this upbeat backdrop, if you have faith in the potential recovery of Wall Street, 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 Trust (SPY - Free Report) .
Investors can also play the growth part of the index with SPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report) and the value part of the index with SPDR Portfolio S&P 500 Value ETF (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.