JPMorgan Sees S&P 500 at 8,000: ETFs That Are Worth Buying

Despite bouts of volatility and uncertainty this year, the broad-market index has remained resilient, gaining approximately 12.4% year to date and 2.39% over the past month. Despite being down about 0.3% since the start of the week, the S&P 500 is up 0.2% over the past five trading sessions.

Inside JPMorgan’s Higher S&P 500 Target

Per analysts at the brokerage, as quoted on the abovementioned article, strong backlogs converting into revenues should support continued cloud growth, helping justify rising AI capex, improve order visibility and alleviate concerns over returns on invested capital (ROIC).

JPM noted that the payoff from increasing AI investments became increasingly visible in the second quarter, particularly at Google, Amazon and Microsoft, with robust cloud growth, expanding backlogs and stronger cash-flow visibility helping ease concerns about returns on AI spending.

Reinforcing J.P. Morgan’s stronger earnings outlook, 85.1% of the 436 S&P 500 companies that had reported June-quarter results through Friday morning beat analyst expectations, according to LSEG data and quoted on the Reuters article. The figure is well above the long-term average of 68% since 1994.

Additionally, J.P. Morgan’s bullish outlook for the S&P 500 is echoed by Ashok Varadhan of Goldman Sachs, who advises that investors concerned about elevated interest rates, higher oil prices and economic resilience of the U.S. economy should remain invested, as quoted on a CNBC article. According to Varadhan, three factors support his bullish market view — no additional Fed rate hikes this year, expectations for oil prices to decline well below $70 a barrel later in the year and growing productivity gains from artificial intelligence that should support economic resilience.

Play the S&P 500 Upside With These ETFs

The upward revisions to S&P 500 targets could support continued investor interest in funds tracking the broad-market index. The funds mentioned below offer investors an opportunity to capitalize on JPMorgan’s forecasted upside.

On the positive side, these funds can also serve as a prudent diversification option. Over the long term, well-capitalized, stable large-cap funds can be a smart choice for investors seeking to build a balanced and diversified portfolio.

Investors can consider Vanguard S&P 500 ETF VOO, iShares Core S&P 500 ETF IVV, State Street SPDR S&P 500 ETF SPY and State Street SPDR Portfolio S&P 500 ETF SPYM. VOO is the largest fund in the United States, having gathered an asset base of $1.03 trillion. These funds are among the top 10 largest ETFs in the United States.

SPY is the most liquid option among the mentioned funds, with a one-month average trading volume of about 48.9 million shares. Regarding annual fees, SPYM is the cheapest option, charging 0.02%. All the mentioned funds have a Zacks ETF Rank #2 (Buy).

As all three funds track the same benchmark, the S&P 500, their returns have been broadly similar, with SPY’s performance differing only slightly. After declining on Tuesday, all three funds were trading in positive territory during Wednesday’s premarket session.

A More Balanced Way to Play the S&P 500

Investors optimistic about the benchmark index but seeking a more balanced approach with a comparatively lower risk profile may consider equal-weighted ETFs tracking the index.

These funds offer sector-level diversification by assigning equal weight to each constituent stock, regardless of market capitalization, thus reducing concentration risk. This makes them a relevant choice for investors seeking a more diversified exposure to the S&P 500 Index.

Investors can consider Invesco S&P 500 Equal Weight ETF RSP and ALPS Equal Sector Weight ETF EQL. RSP tracks the S&P 500 Equal Weight Index, while EQL seeks to replicate the performance of VettaFi Modelist Equal Weight Sector 500 Index.

The S&P 500 Equal Weight Index has double-digit allocation to industrials (16.3%), financials (16%), information technology (14.1%) and health care (12.4%). In contrast, the VettaFi Modelist Equal Weight Sector 500 Index offers a more balanced sector mix, with energy (9.68%), health care (9.57%), financials (9.56%) and information technology (9.5%) representing its four largest sector exposures.

RSP is the larger and more liquid of the two, having gathered an asset base of $98.38 billion and a one-month average trading volume of about 8.12 million shares. EQL is the cheapest option, charging an annual fee of 0.19%.

On a performance basis, RSP has outperformed EQL over the past three months and year to date, gaining 6.12% and 13.12%, respectively. However, EQL has performed better over the past month, rising 1.17%.

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This article originally published on Zacks Investment Research (zacks.com).

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