After several twists and turns, the S&P 500 set a record high of 2023, extending its blockbuster November rally. With the latest surge, the benchmark quickly erased its steep drop seen in the summer and has gained 20% so far this year. SPDR S&P 500 ETF Trust SPY, the proxy version of the S&P 500 Index, has risen more than 21% so far this year.
The gains were driven by optimism that the Fed is done with interest rate hikes, which has pushed the Treasury yields down and rekindled investors’ risk-on trade. Yields on U.S. Treasuries saw the biggest monthly drop since 2008 (read: Treasury ETFs on Track for Best Month Since March).
As the rally has been broad-based, we have highlighted five stocks from different industries that have doubled or near to double so far this year, and have a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold). These are Nvidia NVDA, Meta Platforms META, Royal Caribbean Cruises RCL, PulteGroup Inc. PHM and Salesforce Inc. CRM.
There's a growing confidence among investors that the Fed might be nearing the end of its rate hiking cycle. This optimism was further fueled by comments from Fed Chair Jerome Powell that the central bank could cut rates starting in March. According to CME’s FedWatch tool, traders are pricing in a 70% chance for a rate cut by the U.S. central bank by next March. The latest round of data points has also strengthened the idea that the Fed is done with rate hikes.
A significant portion of the S&P 500's gains can be attributed to the strong performance of a group of large-cap stocks, referred to as the "Magnificent Seven." This group, comprising Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms and Tesla, has seen significant stock gains from 47% to 220% so far this year. The perceived safety of these investments, their size, competitive advantages, and the potential of emerging technologies like artificial intelligence have been the key factors driving their performances.
Further, better-than-expected earnings added to the strength. Earnings growth for the S&P 500 index, which was negative for each of the preceding three quarters, turned positive in the third quarter of 2023 (read: Can S&P 500 Jump to 5000 in 2024? ETFs in Focus).
Let’s take a closer look at the fundamentals of SPY.
SPY in Focus
SPDR S&P 500 ETF Trust holds 503 stocks in its basket, with each accounting for no more than 7.3% of the assets. This suggests a nice balance across each security and prevents heavy concentration. The fund is widely spread across sectors with information technology, financials, healthcare and consumer discretionary accounting for a double-digit allocation each. SPDR S&P 500 ETF Trust has an AUM of $434.7 billion and charges 9 bps in fees per year. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (see: all the Large Cap Blend ETFs here).
Below we have highlighted the above-mentioned five best-performing stocks in the ETF.
Best-Performing Stocks of SPY
Nvidia is the worldwide leader in visual computing technologies and the inventor of graphic processing unit or GPU. The stock has jumped 220% this year. It has an estimated growth of 264.4% for the fiscal year ending January 2024.
Nvidia makes up for 3% of the assets in SPY and has a Zacks Rank #2 at present. It has a VGM Score of B.
Meta Platforms is the world’s largest social media platform. The company’s portfolio offering evolved from a single Facebook app to multiple apps like the photo and video sharing app Instagram and WhatsApp messaging app due to acquisitions. The stock jumped 169.9% so far in the year and has an estimated earnings growth of 45.1% for this year.
Meta Platforms makes up for 1.9% of the assets in SPY and currently has a Zacks Rank #2. It has a VGM Score of A.
Royal Caribbean is a cruise company that owns and operates three global brands — Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises. The stock has gained 124% and accounts for a 0.07% share in the SPY portfolio.
Royal Caribbean has an estimated earnings growth rate of 187.9% for this year and sports a Zacks Rank #1 at present. It has a Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
PulteGroup is engaged in homebuilding and financial services businesses, primarily in the United States. The stock has risen 99.9% so far this year and makes up 0.05% of the assets in the SPY portfolio.
PulteGroup has an estimated earnings growth rate of 6.7% for this year and currently carries a Zacks Rank #3. It has a VGM Score of B.
Salesforce is the leading provider of on-demand Customer Relationship Management software, which enables organizations to better manage critical operations, such as sales force automation, customer service and support, marketing automation, document management, analytics and custom application development. The stock has risen 96% so far this year and accounts for 0.6% in the fund’s basket.
Salesforce has an expected earnings growth rate of 54% for the fiscal year (ending January 2024). It presently has a Zacks Rank #3 and a VGM Score of B.
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