The Three Menaces Looming Over U.S. Corporate Growth
Feb 5, 2024
Analysts Turn More Bullish on S&P 500 for 2025: ETFs to Bet On
The S&P 500 has been on a remarkable upward journey, driven by several factors including the AI boom, cuts in Federal Reserve interest rates, and a positive outlook tied to trade policies. This year alone, the broad index has crossed significant milestones, with a current level approaching 6,100. With the S&P 500 rising by 26.9% so far in 2024, many analysts are optimistic about further growth in 2025.
As Wall Street analysts adjust their forecasts to a more positive stance for the S&P 500, now may be a prime time for investors to consider Exchange-Traded Funds (ETFs) that track this index. Notable options include SPDR S&P 500 ETF Trust (SPY), iShares Core S&P 500 ETF (IVV), Vanguard S&P 500 ETF (VOO), SPDR Portfolio S&P 500 ETF (SPLG), and Invesco S&P 500 Top 50 ETF (XLG).
Analysts' Optimism
Oppenheimer is leading the charge with the most enthusiastic prediction, projecting that the S&P 500 will hit a target of 7,100 by 2025, supported by a strong economic backdrop. Deutsche Bank is similarly upbeat, setting a high-end target of 7,000 for the S&P 500.
BofA forecasts the S&P 500 to reach 6,666 by the end of 2025, representing a 10% increase from its earlier estimate of 6,050. BMO Capital Markets anticipates the index will end at 6,700, while Evercore ISI has set a mid-2025 target of 6,600. Goldman Sachs estimates the S&P 500 will close the next year at around 6,500.
What Drives Their Confidence?
Wall Street's growing optimism can be attributed to expectations surrounding the incoming economic agenda of the newly elected administration. Policies related to restricting illegal immigration, imposing new tariffs, and cutting taxes—despite possible inflationary effects—are believed to stimulate the economy. Investors are also looking forward to supportive tariffs that promote domestic manufacturing, which could further boost stock market performance.
Additionally, the ongoing AI boom is expected to continue its positive influence on the stock market. As AI technologies advance, they promise new growth avenues across various sectors. A report by Bloomberg Intelligence indicates that the generative AI market could expand from a valuation of $40 billion in 2022 to $1.3 trillion over the next decade, showing a compound annual growth rate (CAGR) of 42%.
Finally, the potential for lower interest rates is another significant factor contributing to the bullish outlook. Lower rates often favor growth stocks by reducing borrowing costs, which are crucial for company expansion. When fixed-income investments like bonds yield less, investors are likely to redirect their capital toward equities seeking higher returns.
ETFs to Consider
This ETF tracks the S&P 500 Index and contains 503 equities, with none exceeding 7% of the overall portfolio. SPY has a strong focus on the information technology sector, followed by significant allocations in financials, consumer discretionary, and healthcare.
The SPDR S&P 500 ETF charges an annual fee of 9 basis points and boasts an average daily trading volume of 35 million shares. It has an assets under management (AUM) of $638.5 billion and holds a Zacks ETF Rank of #2, indicating a 'Buy' with a medium level of risk.
iShares Core S&P 500 ETF (IVV)
With an AUM of $583.9 million, this ETF is smaller and less liquid compared to SPY, averaging a daily trading volume of 3 million shares. It has a lower annual fee of just 3 basis points and enjoys a Zacks ETF Rank of #1, denoting a 'Strong Buy' with a medium risk outlook.
This fund also tracks the S&P 500 Index, holding 504 stocks. VOO has accumulated approximately $589 billion in assets and charges an annual fee of 3 basis points. It sees an average daily volume of 4 million shares and carries a Zacks ETF Rank of #1, indicating a strong buy with a medium risk profile.
SPDR Portfolio S&P 500 ETF (SPLG)
SPLG follows the S&P 500 Index with 503 stocks, featuring a low expense ratio of 0.02%. It has an AUM of $54.3 billion and averages about 6 million shares traded daily, earning a Zacks ETF Rank of #1.
Invesco S&P 500 Top 50 ETF (XLG)
Focusing on the biggest 50 companies of the S&P 500, XLG manages $7.7 billion in assets and trades approximately 1.1 million shares daily. It charges 20 basis points in annual fees and has a Zacks ETF Rank of #2, indicating a 'Buy' with a medium risk outlook.
S&P, ETFs, Analysts, Forecast, Bullish