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Guide to the S&P 500 ETF Investing

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The S&P 500 was up about 24% in 2023 due to cooling inflation, a less-hawkish Fed, an AI boom, a tech rally and an improvement in corporate earnings. As we have just entered 2024, it is legit to think about what lies ahead for the S&P 500.

Sentiment had started to turn bullish by mid-November. More than 43% of respondents said that they were bullish on stocks for the next six months. The bullish projections got another leg-up as Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, became the latest strategist to raise her 2024 price target for the S&P 500 on Jan 8, 2024, lifting her forecast to 5,150 from 5,000.

As of now, eight out of 14 analysts that have come up with the 2024 target for the S&P 500 believe that the benchmark index would cross the mark of 5,000 with the highest projection of 5,200 offered by Oppenheimer and Fundstrat, as quoted on Yahoo Finance. Citi, Deutsche, BMO Capital, Goldman Sachs and Bank of America also expect the S&P 500 to hit 5,000 by the end of 2024.

Is It All Bullish?

Let’s delve a little deeper.

Single Digit Gains Waiting for S&P 5200 in 2024? 

When RBC Capital initially set its target of 5,000 in mid-November, it reflected an approximately 10% increase from the levels existing at that point, Calvasina expressed, as quoted on Yahoo Finance. Now, with its 5,150-price target, it represents an 8% gain compared to the index's closing value in December 2023, indicating that the enthusiasm has somewhat diminished.

The positive forecast by RBC is based on five different analytical models. These models consider various factors like market sentiment, valuation and earnings, the overall economic environment, political scenarios, and the relationship between stocks and bonds.

Inside the Bulls: Market Resilience Despite Economic Uncertainty

The majority of respondents do not expect a massive economic downturn as the primary risk to the markets this year. Plus, there are high chances that the Federal Reserve will cut interest rates before July, arranging more supplies of cheap money and helping the S&P 500 Index to rally.

Valuation and Inflation Considerations

RBC suggests that the market's valuation, in terms of how stocks are priced relative to their earnings, could remain high. They believe that a decrease in inflation rates will play a crucial role in supporting these high valuations based on historical precedents from the 1970s. RBC also noted that equity valuations can stay higher than what many investors currently realize.

RBC Capital also cited that historically, stocks have generally performed well even when bond yields offer competitive returns. Hence, bond market fluctuations should not be a cause of concern.

Wall of Worry: Presidential Election Year Influence

The 2024 U.S. presidential election is seen as a potential source of uncertainty for the stock market. RBC notes that, on average, the S&P 500 tends to grow about 7.5% during presidential election years, which is less than its typical growth rate. This suggests that election years bring a level of uncertainty that can affect market performance.

Weak Consumer Spending Expected in 2024?

The likelihood of a U.S. recession or slowdown, a dearth of rapid Fed policy easing, or any new political or geopolitical crisis may also complicate things. Around 33% of survey participants think a slowdown in consumer spending could act as a potential risk to the market rally in 2024. JPMorgan believes that the S&P 500 will fall next year amid a challenging macro backdrop.

ETFs in Focus

Against this mixed 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 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.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) if the index is on an uptrend.

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