The S&P 500 has enjoyed further stratospheric growth this century. Since the first trading day of 2000, the S&P 500 has risen a staggering 297% in value. To put that into context, the FTSE 100 has grown ‘just’ 20% in that time.
Past performance is not always a reliable guide to the future. But here are several reasons why I think the S&P 500 will continue to soar.
Stronger economy
Markets hate uncertainty. And with November’s presidential election on a knife-edge, Wall Street equities could be in for a bumpy rise in the next month or so.
Regardless, I still expect US shares to continue performing strongly over a longer time horizon. This is thanks to phenomena like America’s large consumer base, diverse economy, and significant geopolitical influence.
The forecasts remains encouraging for the nearer-term, too. Today the IMF announced it expects the US economy to expand 2.3% in 2024. That’s above the 1.3% average rise predicted for advanced economies.
And in 2025, US growth is tipped at 1.7%, versus 1.5% across the likes of the UK, Germany and Japan. If accurate, this could see New York-listed stocks outperform overseas shares over the period.
Possible dollar drop
The S&P 500 is packed with multinationals that report their profits in US dollars. This can have huge advantages for investors.
One perk is that when the dollar weakens, these companies’ foreign turnover becomes more valuable once translated back into bucks, boosting their reported earnings. This profits-boosting phenomenon can, in turn, help to drive share prices higher.
The good news (for share investors, at least) is that the dollar could be in for a tough time looking ahead. Analysts at Vanguard, for instance, believe there’s a 75% chance the US dollar will depreciate over the next decade, “with a modest decline of 1.1% annualised the most likely outcome“.
Tech focus
The S&P 500’s high tech exposure is a major reason for its breakneck performance since 2000. Encouragingly, the outlook for ‘Big Tech’ remains as bright today as it was a quarter of a century ago.
Segments like artificial intelligence (AI), quantum computing, autonomous vehicles, green technology, and robotics all have significant growth potential that could drive the index skywards.
Thanks to the so-called Magnificent Seven shares, S&P 500 investors have excellent exposure to each of these phenomena. Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla collectively account for 31% of the S&P 500’s total weighting.
Here’s what I’ve done
In light of all the above, I opened a position in the HSBC S&P 500 ETF (LSE:HSPX) for my Self-Invested Personal Pension (SIPP) earlier this year.
This exchange-traded fund (ETF) tracks the performance of all of the US stock market’s 500 largest companies. And with a 0.09% ongoing charge, it does this at extremely low cost.
The fund allows me to capture potential growth opportunities as well as to effectively manage risk. Its exposure to hundreds of different companies across different sectors helps me to effectively spread the danger.
On the downside, this ETF contains a large number of cyclical shares like banks, consumer goods manufacturers, and banks. And so it’s in danger of underperforming during economic downturns. However, over the long term, I still think it could prove an excellent investment for me.
