Is It A Good Time To Invest In S&P 500?

(As of Q2 2022)

Personal Stance

Based on where we stand today, my stance toward S&P 500 is neutral.

 

I wouldn’t consider investing in it on a lump sum basis at the moment as at a price level of around $4,400 to $4,500 the expected return on the S&P 500 over the next 5 to 10 years is not that attractive.

Based on the fundamental analysis and an assumption of a 6% yearly growth in the earnings per share, we can expect to receive a return of -3.9% to 6.4% a year over a 5-year investment horizon and 0.93% to 6.22% a year over a 10-year investment horizon.

S&P Expected Returns.PNG

Looking at the current investment climate, I doubt that the S&P can sustain its current price-to-earnings multiple and in the long run it is highly likely that we will be trading within a fairly valued price to earnings multiple.

That said, realistically speaking, investing in S&P 500 today will provide you with a return of 1.8% a year over the next 5 years and 3.88% a year over the next 10 years.

Furthermore, based on the technical analysis of the weekly chart, the readings also suggest that there is a higher probability of further price decline as opposed to a price increase.

S&P 500 Weekly Chart.PNG

Overall Readings: Correction

  • Price Action: Correction

  • Short-term Trend: Correction

  • Long-term Trend: Overvalued

  • RSI: Neutral

  • Klinger Oscillator: Bear Market

Additional Consideration

Apart from the fundamental and technical analysis, here are also factors that you might want to take into account in helping you shape your investment decision.

In terms of economic strength and performance, the US economy is certainly still going strong and analysts a continued economic growth in the US that is relatively stronger than other parts of the world.

 

This will ensure that businesses within the US will continue to perform as consumption and production remain strong.

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On the topic of investors' perception, having the perception of being the safe haven of the world had also bolstered the attractiveness of investing in the S&P 500 as many investors are investing in the US markets amid a flight to safety response. This will help increase the demand for US stocks which will help push prices further up.

Lastly, while the economic outlook of the US remains strong for now, investors should not discount the impact that a hawkish fed and quantitively tightening may have on the economy.

 

Given that inflation is currently running wild, we can expect interest rates to increase which will inevitably slow down the economy as the cost of borrowing increases which will lead to a decrease in profitability.

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Furthermore, based on history, the federal reserve is known for its tendency to tighten until something breaks which are also why analyst are foreseeing a rising recession probability amid the current efforts to maintain price stability in the middle of a war.

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Summary

All things considered, I wouldn’t invest in the S&P today based on its current prices given that the expected return over 5 and 10 years is not justifiable for the level of risks that we are seeing today.

That said, there are still ways for us to work around the current climate and structure an investment portfolio that can deliver the returns that you need to accelerate your wealth accumulation goals.

If you do not know how to get started with your investments or if you do not have the time to manage your investments, you can check out what I do on my website here to see how you can benefit from my investment planning services and reach out to me directly.

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