The S&P 500 is off 19% this year (as of Jul 15, 2022). 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 as the index could rally in 2023. Let’s delve a little deeper.
Inflation May Ease in 2023
According to Kristalina Georgieva, managing director of the International Monetary Fund, global interest rates will likely keep rising until 2023 and that’s when continued rate hikes will cool inflation and help stabilize economies and markets, as quoted on CNBC. Commodity prices, such as oil, may have leveled out and started falling lately. If continued recessionary fears remain rife, oil prices may ease more in fear of less economic activity. This, in turn, will tame inflation and restore economic growth.
History Suggests S&P 500 Rally in the Cards
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 (read: History Says S&P 500 Rally in Cards: ETFs in Focus).
Markets Are Pricing Rate Hikes Fast
To Lerner’s point, investors have re-priced stocks quickly this year to bake in sky-high inflation and the Federal Reserve’s faster interest rate hikes. Markets have already priced in a likely U.S. economic recession in Q2 and fat Fed rate hikes in the coming days. That is why the yield curve has inverted this year.
Economic Recession Does Not Mean a Full-Blown Earnings Recession
Per Zacks Earnings Trends issued on Jul 13, 2022, total S&P 500 earnings are expected to increase +2.1% from the same period last year on +9.7% higher revenues and net margin compression of 95 basis points. Expected earnings growth for 2022 and 2023 are 8.6% and 8.5%, respectively on 9.3% and 4.8% revenue growth, per the report.
ETFs to Watch
If you follow the S&P 500’s historical explanation provided by Keith Lerner and the above-mentioned factors, 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, iShares Core S&P 500 ETF IVV and SPDR S&P 500 ETF SPY.
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 is a good bet for the dividend plays of the index. SPYD yields 3.94% annually.
Investors can also bet on leveraged S&P 500 ETFs like Direxion Daily S&P 500 Bull 3X Shares SPXL, ProShares Ultra S&P500 SSO and ProShares UltraPro S&P500 UPRO while the index is on an uptrend.
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SPDR S&P 500 ETF (SPY): ETF Research Reports
Direxion Daily S&P 500 Bull 3X Shares (SPXL): ETF Research Reports
ProShares UltraPro S&P500 (UPRO): ETF Research Reports
ProShares Ultra S&P500 (SSO): ETF Research Reports
Vanguard S&P 500 ETF (VOO): ETF Research Reports
SPDR Portfolio S&P 500 High Dividend ETF (SPYD): ETF Research Reports
iShares Core S&P 500 ETF (IVV): ETF Research Reports
SPDR Portfolio S&P 500 Growth ETF (SPYG): ETF Research Reports
SPDR Portfolio S&P 500 Value ETF (SPYV): ETF Research Reports
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