SPY - SPY: Potential Yes But Risks Ahead Too
2024-03-28 09:30:13 ET
Summary
- S&P 500 and its replica fund, SPDR S&P 500 ETF Trust, have seen positive performance in Q1 2024, and the potential for the top 10 holdings continues to indicate an upside.
- However, there are risks to consider when considering investing for returns this year too. The key one is the macro economy, which can slow down in the upcoming quarters.
- The index's P/E is also trading higher than its historical average and its exposure to cyclicals is appreciable.
The S&P 500 ( SP500 ) has done quite well in the first quarter of 2024 (Q1 2024), up by 9.7% at the time of writing. By extension, its replica fund, the SPDR S&P 500 ETF Trust ( SPY ) is also ahead. There are two reasons why this trend is particularly interesting:
- The rise slightly outstrips the Nasdaq tracker fund Invesco QQQ Trust ETF ( QQQ ) so far this year. This is a turn in trend from last year when QQQ saw an increase of 54% compared with 24% for SPY. The SPY’s lead is trivial at present (see chart below) but at the very least it indicates that it has caught up with QQQ.
- The rise is even more significant considering that it comes at a time when the US economy is expected to see a slowdown, even as inflation cools off and interest rates are expected to start coming off later in the year. In fact, my projections for the S&P 500 indicated that on average, the figure would be 0.75% below the average number of 2023 based on the index's relationship with US GDP.