The S&P500(SNPINDEX: ^GSPC) is up 35% year to date, hitting more than four dozen record highs in the process. Factors contributing to this positive effect include enthusiasm about artificial intelligence (AI), strong corporate earnings, and the Federal Reserve’s stance on interest rate cuts.
More recently, stocks have surged on expectations that President-elect Donald Trump will improve the environment for businesses by lowering corporate tax rates and reducing regulations. Tom Lee, head of research at Fundstrat Global Advisors, expects stock market momentum to continue through the end of the decade.
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Specifically, Lee believes the S&P 500 will reach 15,000 by 2030. That would be a 152% increase from the current level of 5,950, requiring an annualized growth rate of 16.7% over the next six years. His prediction is based on the premise that tech stocks will shine as companies rely on AI to offset the impact of a global labor shortage estimated to reach 80 million workers by 2030.
Investors can gain exposure to that potential upside by simply purchasing a low-fee S&P 500 index fund like the Vanguard S&P 500 ETF(NYSEMKT:VOO).
The Vanguard S&P 500 ETF tracks the performance of the index, which includes 500 of the largest publicly traded U.S. companies, including growth and value stocks from every market sector. Like the benchmark index, the exchange-traded fund is now heavily weighted towards the technology sector, which includes a range of companies well-positioned to benefit from artificial intelligence.
The 10 largest holdings in the Vanguard S&P 500 ETF by weight are:
Several of these are already major players in the AI economy. For example, Amazon, Microsoft and Alphabet’s Google are the three largest providers of public cloud infrastructure in the world, collectively responsible for more than 60% of cloud infrastructure spending. This leaves them well-positioned to benefit as companies look for processing power to support their AI systems.
Similarly, Nvidia is the market leader in data center accelerators and AI networking equipment, and has a sustainable competitive advantage thanks to its CUDA software platform. Broadcom is a leader in networking chips and application-specific integrated circuits (ASICs), two markets expected to grow rapidly due to rising demand for AI infrastructure.
As a global labor shortage threatens to slow business growth over the next decade, technology companies can help ease the pressure. Companies have historically turned to innovative technologies to overcome productivity headwinds, and the result has typically been dramatic outperformance across the industry. AI fits in perfectly with this.
Fundstrat’s Lee made that point earlier this year. “Between 1948 and 1967, there was a global labor shortage and technology stocks went parabolic. And between 1991 and 1999, there was a global labor shortage and technology stocks went parabolic. So this is what is happening today,” he told his customers.
Image source: Getty Images.
Investors should always view price targets skeptically, even if those price targets apply to the entire stock market. Wall Street has traditionally done a poor job predicting the future of the S&P 500.
“Over the past four years, the average delta between the average S&P 500 forecast at the start of the year and the level at which the S&P 500 ended the year was 17 percentage points,” said Goldman Sachs. Given how much Wall Street struggles to accurately predict how the market will behave, even over the short horizon of one year, the chances of a forecaster making an accurate multi-year forecast are slim at best.
How the S&P 500 actually performs through the end of this decade will depend on a host of economic fundamentals, valuations and emotionally driven factors that are harder to quantify. And while most of the latest data suggests the U.S. economy is fairly strong, the S&P 500 currently trades at 22.2 times forward earnings, a significant premium to the five-year average of 19.6. In fact, the current profit margin is the most expensive valuation the S&P 500 has had in more than three years, according to FactSet research.
The bottom line: With an expense ratio of 0.03%, the Vanguard S&P 500 ETF offers retail investors cheap and easy exposure to the S&P 500, which includes many of the world’s most influential companies. This compelling investment thesis is one reason why Warren Buffett has repeatedly recommended an S&P 500 index fund to retail investors. But investors should keep their expectations in check in the coming quarters and years. Lee’s prediction that the S&P 500 will rise 16.7% annually through the end of this decade may be overly optimistic.
Consider the following before buying shares in Vanguard S&P 500 ETF:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Trevor Jennevine has positions in Amazon, Nvidia, Tesla and Vanguard S&P 500 ETF. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, FactSet Research Systems, Goldman Sachs Group, Meta Platforms, Microsoft, Nvidia, Tesla and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
The First Vanguard Index Fund to Buy Before It Surges 152%, According to a Certain Wall Street Analyst was originally published by The Motley Fool
