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The S&P 500 is starting to eclipse highs that many folks may not have thought possible just a year ago. Undoubtedly, the tech-driven rally (thanks artificial intelligence [AI]!) has taken hold, and that so-called soft (or hard) landing doesn’t seem to be anywhere in sight? Could it be that central banks managed to land that economy in such a soft manner that nobody seemed to notice?
It’s definitely possible, but, of course, one shouldn’t rule out a bumpier tarmac at some point in the near future. In this piece, we’ll check out a few investments that I think are positioned to gain through the year, as they look to make up for lost time.
As the S&P 500 continues inching higher, surpassing the estimates of many, some profit-taking may be in order, if say, you’re heavily invested in the AI stocks that have more than doubled over the past year (or even just the past few months). If you’re up big with such winners, it certainly can’t hurt to play with the house’s money as the rally in some of the AI chip top dogs looks to get a bit long in the tooth. Either way, the S&P 500 doesn’t seem bubbly, as some may be inclined to believe.
Yes, it’s been a great run, with the S&P 500 at above 5,100. Over the past year, America’s top index is up a scorching 26.7%. But that in itself doesn’t suggest the stock market is overvalued and overdue for some sort of vicious pullback. Arguably, we experienced that (and a tech route) way back in 2022. When you look at the markets on a past-year basis, then sure, they look frothy, even overvalued. Many tech titans are trading at multiples well above their historic norms.
The S&P 500 is getting frothy … or is it?
When you take a further step back, however, you’ll see that the S&P 500 is only up 7.7% from its high hit at the very end of 2021. I don’t know about you, but a 7.7% gain in more than two years doesn’t seem all too absurd. Last year essentially saw the S&P 500 regain the losses it posted in 2022. And while there have been massive winners (and some losers), I’d argue that you don’t need to chase the overheated winners to do well in this market.
Though I believe another +25% year of gains is less likely for 2024, I think it’s a bad idea to cash out your investments just because stocks are at new all-time highs in the United States. There’s a good chance that 2024 could see double-digit percentage gains. And in that regard, I believe stocks are still worth owning.
If you’re a long-term thinker, perhaps allocating more capital towards cheap plays is warranted. Indeed, the beauty of self-guided investing is that you can continue to do well even as the rest of the market stalls out. Of course, it’s really hard to beat the S&P 500 consistently. But in Canada, it’s far easier to stock-pick your way to crushing the TSX Index, a market average that’s been far less hot of late.
A great way to bet on the S&P 500 as a Canadian investor
In short, I believe it’s safe to invest in the S&P 500 as a passive investor. Just be prepared to double down on any meaningful dips we’ll encounter on the road higher. I have no idea when the bumps will hit, but investors should be ready with cash on the sidelines.
Vanguard S&P 500 Index ETF (CAD-hedged) (TSX:VSP) is one of the best Canadian exchange-traded funds, or ETFs, to play the U.S. markets with a passive approach. Even at these heights, I view the ETF as a great pick if you’re a tad light on U.S. exposure.
With a low management expense ratio (MER) — that’s to be expected from Vanguard — and a currency hedge built in, the index makes for a great play if you’re a set-it-and-forget-it type of Canadian investor! Do be bullish on the U.S. markets over the long run, but don’t expect the pace of gains to last forever. They’re bound to slow at some point, perhaps with a correction thrown in. So, be ready to roll with the punches!
