- The SPY, IVV, and VOO stocks have done well this year despite risks.
- US bond yields have soared because of the elevated consumer inflation.
- The S&P 500 Index is a bargain and seeing strong revenue growth.
Top ETFs tracking the blue-chip S&P 500 Index have done well this year despite the rising US bond yields and the ongoing US-Iran war, which has no end in sight. The SPY, IVV, and VOO stocks have jumped by over 17% from their highest points this year. This article explores why they have more upside to go despite soaring yields.
SPY, IVV, and VOO Stocks are Soaring Despite Risks
The S&P 500 and the broader stock market are thriving this year, buoyed by relentless demand despite elevated risks. The ongoing US-Iran conflict remains the biggest wildcard, with no clear resolution in sight as the two sides remain far apart.
In a statement on Wednesday, President Trump maintained that the two sides were getting close to a deal, lifting the stock market and driving crude oil prices lower. This changed today, with crude oil prices resuming their uptrend after it became clear that the deal was still further apart.
The war has driven US inflation upwards, with the headline Consumer Price Index (CPI) and Purchasers Price Index (PPI) rising to 3.8% and 6%, respectively in April. This, in turn, has fueled the rising bond yields, with the ten-year and 30-year rising to 4.5% and 5.2%, respectively.
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The rising yields tend to be risky for the stock market. For one, it raises borrowing costs for companies, hurting their margins. Also, it fuels rotation from the stock market to the bond market, where investors can receive over 4% return in months.
S&P 500 Index is Cheap and Fueled by Strong Earnings Growth
Even as the S&P 500 trades at record highs, two key catalysts could push it even higher in the near term. First, there are signs that the index is a bargain. FactSet shows that the index trades at a forward price-to-earnings ratio of 22, slightly higher than the five-year average of 18.5.
Second, the SPY, VOO, and IVV ETFs are backed by strong earnings growth. Data shows that the average S&P 500 Index earnings growth for the first quarter was 28.4%, the highest level since Q4’21, when it grew by 32%.
Most of this revenue growth is being driven by companies in the technology industry. For example, NVIDIA published strong financial results, with the revenue growth rising by 80%. It now expects that its revenue growth will be over 90% in the second quarter. Other top companies like Microsoft, Palantir, and AMD published strong numbers.
Therefore, a combination of cheap valuations and strong revenue growth means that the S&P 500 Index and its top ETFs will continue doing well in the coming months.
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