Tom Lee, managing partner and head of research at Fundstrat Global Advisors, was one of the only analysts that predicted the stock market rally in 2023. The S&P 500 (SNPINDEX: ^GSPC) had declined 19% in 2022 due to runaway inflation and rapidly rising interest rates, but Lee looked through that weakness and predicted a 24% gain in the following year.
Lo and behold, the S&P 500 advanced 24% in 2023 due to excitement about artificial intelligence (AI) and signs of economic resilience. Additionally, Lee forecasted in 2017 that Bitcoin would surge more than 20-fold to reach $55,000 by 2022. That prediction came true more quickly than expected. Bitcoin hit $67,000 in 2021.
Of course, a few good estimates do not mean Lee is omniscient, but they do lend credit to his latest (and perhaps boldest) prediction. He recently told Bloomberg the S&P 500 could reach 15,000 by 2030 as demand for artificial intelligence increases and the millennial population enters peak earnings years.
The S&P 500 currently trades at 5,515, meaning Lee expects the index to advance 172% by the end of the decade, which implies an annual return of 16%. Investors can position themselves to benefit from Lee’s prediction by owning an S&P 500 index fund like the Vanguard S&P 500 ETF (NYSEMKT: VOO).
The Vanguard S&P 500 ETF can help investors capitalize on artificial intelligence
Tom Lee identified two catalysts that could catapult the S&P 500 to 15,000 by the 2030. First, the millennial population is larger than any other living generation, and millennials are entering peak earning years, which should boost economic growth. Second, the global labor shortage is forecasted to reach 80 million workers by 2030, which should create demand for artificial intelligence (AI) as a means of automating workflows.
The Vanguard S&P 500 ETF can help investors capitalize on both trends. The index fund spreads money across value stocks and growth stocks that cover about 80% of U.S. equities and 50% of global equities by market value. In other words, it provides exposure to hundreds of companies that play a crucial role in powering the U.S. and global economies.
Additionally, hundreds of S&P 500 companies are experimenting with AI. In fact, a record 199 companies in the index mentioned AI during their first-quarter earnings calls, according to FactSet Research. Moreover, the S&P 500 is skewed toward the information technology sector, and companies in that sector should rank among the largest beneficiaries of the AI boom.
The 10 largest holdings in the Vanguard S&P 500 ETF are listed by weight below.
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Apple: 6.9%
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Microsoft: 6.8%
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Nvidia: 6.2%
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Alphabet: 4.1%
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Amazon: 3.7%
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Meta Platforms: 2.2%
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Berkshire Hathaway: 1.7%
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Broadcom: 1.5%
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Tesla: 1.4%
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Eli Lilly: 1.4%
Importantly, the Vanguard S&P 500 ETF has a relatively cheap expense ratio of 0.03%. That means the annual fees will total $0.30 for every $1,000 invested in the index fund.
The S&P 500 has been a surefire moneymaker over long periods
The S&P 500 was created in 1957, but the selection criteria can be applied to earlier time periods to produce hypothetical back-tested data. Using that methodology, Crestmont Research publishes an annual report detailing the S&P 500’s rolling returns since 1900. The index would have been a profitable investment over every 20-year interval during the period.
Moreover, the S&P 500 advanced 634% over the last 20 years, compounding at 10.5% annually. Very few asset classes generated better returns during that period. The S&P 500 outperformed international stocks, fixed income, real estate, and precious metals, according to data from Morgan Stanley.
As a caveat, the S&P 500 currently trades at 21 times forward earnings, a premium to the five-year average of 19.4 times forward earnings and the 10-year average of 17.9 times forward earnings. That means many stocks are historically expensive. Additionally, while the S&P 500 could hit 15,000 by 2030, the odds are remote. Tom Lee’s forecast implies an annual return of 16%, which far exceeds the historical average.
However, the S&P 500 provides exposure to hundreds of the most influential companies in the world, and owning an index fund like the Vanguard S&P 500 ETF can help investors capitalize on the aging millennial population and the artificial intelligence boom. That makes for a compelling investment thesis.
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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, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Bitcoin, FactSet Research Systems, 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 on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
1 Vanguard Index Fund to Buy Before It Soars 172%, According to a Wall Street Analyst was originally published by The Motley Fool
Source: finance.yahoo.com