Because growth stocks have already bottomed out and fundamentals are beginning to support the establishment of a recovery trend, the Vanguard S&P 500 Growth ETF VOOG represents one of the greatest purchasing opportunities for investors with a three- to five-year time horizon.
VOOG is the ideal ETF to benefit from the recovery in 2023 as well as possible gains in the years ahead due to its substantial exposure to the information technology sector.
Its low expense ratio and strong liquidity ratio, among other characteristics, make it a more dependable ETF to keep over time than its competitors.
The Worst is Over
With a recession looming and interest rate hikes on the horizon, 2023 began with one of the most gloomy forecasts for the S&P 500 and growth stocks in the previous two decades.
In addition, Morgan Stanley strategists anticipated that the stock market would reach new lows in the first half of 2023 as a result of a steep reduction in earnings.
According to the company, the S&P 500 will earn $195 per share in 2023, down from $218 per share in 2022 but, the stock market, in my opinion, bottomed out in October 2022, and the current uptick in stock prices is not a bear market rally since investor confidence has been reinstated by an unexpected change in fundamental causes.
This should benefit VOOG in the long run.
For example, recent economic data from the United States and other significant regions such as Europe and China suggested that the economy will perform better than projected in 2023.
Good retail sales figures, a falling inflation rate, and a robust job market in the United States gave cause to expect that the economy would avoid a serious downturn.
According to CNBC’s Jim Cramer, a harsh landing is virtually unthinkable when job creation has been so rapid.
While a severe recession is less likely due to the labor market’s strength, it does underscore the need for additional rate hikes to rebalance the labor market and keep prices and wages from rising.
According to Lotfi Karoui, a Goldman Sachs strategist, there will be three more rate hikes in 2023, but they will not cause the economy to contract; rather, they will stall growth.
PMI Data
The US PMI Composite Output Index reached its highest level in thirteen months in February.
A PMI score of 50 or higher implies that the manufacturing sector in the United States is expanding.
In recent weeks, US GDP predictions have also been dramatically revised upward. For example, the Atlanta Fed has upped its first-quarter US GDP forecast many times in recent weeks, from less than 1% to 2.7%.
Apart from the United States, the European Commission anticipates that economic activity will not decrease in the first quarter, avoiding the bloc’s much-anticipated recession.
The Chinese government has relaxed its harsh COVID-related rules, which are expected to promote consumption and commercial activity.
This is reflected in Fitch’s increased growth prediction, which now calls for 5.0% growth, up from 4.1% previously.
Global GDP growth is anticipated to beat prior forecasts, which is good news for multinational firms.
Vanguard S&P 500 Growth ETF Benefits from Technology Exposure
The Vanguard S&P 500 Growth ETF is one of the best ETFs to buy and hold during a recovery period because of its high exposure to the information technology sector and diversification into other vital growth sectors.
The technology sector accounts for over 31% of VOOG’s holdings, including its top ten holdings: Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), and Visa (V).
A better-than-expected economic forecast, as well as good fourth-quarter financial reports and fiscal 2023 projections, are boosting IT stocks.
The technology sector outpaced all other S&P 500 sectors in the fourth quarter, according to FactSet data, with 82% of companies beating expectations.
The Technology Select Sector SPDR ETF (XLK), which provides broader technology sector coverage, has risen around 18% year so far, surpassing the S&P 500’s mid-single-digit percentage gains.
Apple’s stock has risen 18% since the beginning of the year, as Chinese fundamentals have improved.
China is an important market and manufacturing location for Apple.
The company has endured considerable financial and supply chain strain in the past year as a result of COVID-related restrictions in the world’s second-largest economy.
COVID-19 issues, according to Apple CEO Tim Cook, have adversely hampered the supply of the iPhone 14 Pro and iPhone 14 Pro Max.
Foreign exchange headwinds are also expected to ease for the technological behemoth, as the dollar has dropped considerably since last October.
Microsoft also beat its December quarter forecasts and anticipates positive year-over-year growth in 2023.
NVDA Boost
Nvidia, in particular, astounded investors with fantastic fourth-quarter numbers and a better-than-expected outlook.
The company anticipates first-quarter sales of $6.5 billion, up from $6.05 billion the previous quarter and beating analysts’ predictions of $6.35 billion.
Following the report, Goldman Sachs analyst Toshiya Hari raised Nvidia to “buy,” stating that the company will continue to gain due to a favorable estimate and a potential expansion in its multiple.
NVDA shares have grown by a remarkable 62% since the beginning of the year.
Nevertheless, payment technology businesses such as Visa and Mastercard (MA) are predicted to boost their revenue by double digits in 2023.
Cisco (CSCO) forecasts sales to climb between 11% and 13% year on year in the March quarter, with full-year earnings ranging between $3.73 and $3.78 per share, up from $3.51 to $3.58 per share previously. Another favorable development for VOOG.
So far in 2023, growth companies in the consumer discretionary and communication services sectors have outperformed the entire market index.
Despite the fact that the healthcare industry has underperformed thus far in 2023, the fundamentals appear to be strong, with top-rated healthcare growth businesses anticipated to deliver solid financial growth.
For example, UnitedHealth Group (UNH), one of VOOG’s top 10 stock holdings, outperformed fourth-quarter expectations.
The business now expects adjusted net earnings per share to reach between $24.40 and $24.90 in 2023, up from $21.18 per share last year.
Eli Lilly (LLY) outperformed forecasts in the fourth quarter, and it expects 2023 earnings per share to be in the $7.90 to $8.10 range, up from $6.90 in 2022.
To Summarize
Growth stocks look to have bottomed out, and future signs are portraying a more hopeful picture.
History also shows that following every bear market, equities go on a long bull run, and those who buy at the bottom of the selloff make a lot of money.
The downside risk appears to be limited from here because a streak of strong economic data has lessened the likelihood of a steep decline in earnings and a catastrophic recession.
Overall, VOOG’s high beta and exposure to tech firms position it to beat the S&P 500 during a recovery and bull run.
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