VOO - VOO: Brighter Outlook Thanks To The 2024 June CPI Data

2024-07-12 11:40:39 ET

Summary

• Previously, I was concerned about Vanguard S&P 500 ETF's valuation risks, judging by the extremely thin excess CAPE Yield, or ECY.
• The new CPI data shows inflation is easing and provides further support for Fed to cut interest rates.
• Thus, the real interest rates are very likely to decline, widen the ECY, and brighten the return potential for the VOO ETF.

VOO ETF and June CPI data

I last wrote about the Vanguard S&P 500 ETF ( VOO ) about 3 months ago. In that article, entitled 2024 Return Projection Based On Excess CAPE Yield , I shared my concerns about VOO’s valuation risks. These were primarily based on its narrow excess CAPE yield ("ECY") relative to treasury rates and suggested a total market fund like Vanguard Total Stock Market Index Fund ETF Shares (VTI) as an alternative idea. Quote:

This article provides a projection for the Vanguard S&P 500 ETF ((VOO)), estimating a downside risk of around 8% by the end of 2024. The projection is based on the Excess CAPE Yield (“ECY”). The ECY is currently near the lowest levels in several decades, indicating high valuation risks and low future return potential.

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