Market Rally: S&P 500 Closes Strong as Tech Stocks Surge
The S&P 500 (SNPINDEX: ^GSPC) experienced a notable upswing, closing higher for nine consecutive trading days from April 21 to May 2. This marked its first nine-day winning streak since 2004.
Strong earnings reports from major tech companies and improved trade relations helped fuel this market recovery. Investors were encouraged by talks of eased tariff tensions, leading to a resurgence in exchange-traded funds (ETFs) heavily invested in growth stocks.
The Vanguard Growth ETF (NYSEMKT: VUG), a prominent growth-focused ETF, surged by an impressive 13.7% during this nine-day period. This low-cost ETF has become a popular option for risk-tolerant investors seeking exposure to leading growth stocks.
Image source: Getty Images.
Focusing on the “Magnificent Seven”
The Vanguard Growth ETF places a stronger emphasis on growth stocks compared to the Vanguard S&P 500 ETF (NYSEMKT: VOO), with only 166 holdings versus 505 in the S&P 500. By excluding value stocks, the ETF concentrates its assets on leading companies, particularly the “Magnificent Seven,” which includes:
- Apple (NASDAQ: AAPL)
- Microsoft (NASDAQ: MSFT)
- Nvidia (NASDAQ: NVDA)
- Amazon (NASDAQ: AMZN)
- Alphabet (NASDAQ: GOOG), (NASDAQ: GOOGL)
- Meta Platforms (NASDAQ: META)
- Tesla (NASDAQ: TSLA)
Here’s a comparison of the top weightings in the Vanguard Growth ETF versus the Vanguard S&P 500 ETF:
|
Company |
Vanguard Growth ETF |
Vanguard S&P 500 ETF |
|---|---|---|
| Apple | 12.4% | 7% |
| Microsoft | 10.3% | 5.9% |
| Nvidia | 9.2% | 5.6% |
| Amazon | 6.5% | 3.8% |
| Alphabet | 5.8% | 3.5% |
| Meta Platforms | 4.3% | 2.7% |
| Broadcom | 3.1% | 1.7% |
| Tesla | 2.8% | 1.5% |
| Eli Lilly | 2.8% | 1.4% |
| Visa | 2.3% | 1.3% |
Data source: Vanguard.
As depicted, the top ten companies constitute 34.4% of the S&P 500 but represent an even larger 59.5% of the Vanguard Growth ETF’s assets. While these companies have led recent gains, they may also contribute to declines during market corrections.
Recently, all members of the Magnificent Seven underperformed the S&P 500, but now they have regained momentum. A recent analysis indicates that all but Apple outperformed the S&P during the nine-day rally, particularly notable gains were seen from Tesla, Meta, Microsoft, and Nvidia.
TSLA data by YCharts
Understanding Big Tech’s Recovery
A shift in investor sentiment and potential tariff resolutions have spurred the recent recovery, but strong earnings results have also played a significant role. Tesla, for example, had been one of the poorer performers in the S&P 500 this year until its recent upswing. Earlier earnings showed first-quarter deliveries at three-year lows. However, investors turned optimistic following news that CEO Elon Musk planned to reduce his political engagements to focus on Tesla’s growth and introducing more affordable models.
Microsoft showcased strong revenue growth and robust margins in its software and cloud segments. The company’s investments in artificial intelligence continue to yield positive results across its various platforms, including Microsoft 365 and Azure AI. Its record capital expenditures will bolster data center expansions, supporting future customer demands. Microsoft also presented a positive outlook for the next quarter, indicating that operational margins are expected to improve despite broader economic challenges.
Meta Platforms reported impressive growth across its suite of applications, aided by its AI initiatives enhancing user engagement and advertising effectiveness. Although the company has lowered its overall spending forecasts, it has increased its capital expenditure expectations, signaling confidence in its long-term strategies despite some current headwinds.
CEO Mark Zuckerberg stated, “If we deliver on this vision, the productivity boost from AI could significantly increase advertising’s share of global GDP in the coming years. We are currently testing a new ads recommendation model that could enhance this potential.”
# Meta and Alphabet Leverage AI to Drive Growth Amid Tariff Concerns
## AI’s Impact on Meta’s Business Growth
Meta has reported a 5% increase in conversion rates attributed to its AI-driven tools. Additionally, the use of AI creative tools by advertisers surged by 30% in the last quarter. This uptick underscores AI’s role in enhancing Meta’s product offerings and bolstering its business model. Despite potential cyclical downturns, Meta remains committed to increasing capital expenditure (capex) to capitalize on long-term opportunities.
## Alphabet’s Steady Performance and Strategic Investments
While Alphabet’s stock has not surged as dramatically as Microsoft or Meta’s in recent weeks, the company still showcased robust performance. Growth in high-margin services such as Google Search and YouTube has been significant. Alphabet continues to prioritize aggressive investments in Google Cloud and AI technologies, aligning its strategic direction with current market demands.
## Hyperscalers Maintain Capex Budgets Amid Economic Uncertainty
Leading into earnings season, analysts speculated whether major players like Microsoft, Meta, and Alphabet would sustain high capex budgets in light of tariff uncertainties. However, management insights from recent earnings reports confirmed that spending remains strong. This is a positive signal for Nvidia, which counts these hyperscalers as key customers. Increased investments in AI typically lead to higher demand for Nvidia’s graphics processing units (GPUs), essential for complex AI tasks.
## Nvidia: Navigating Tariff Challenges and Capitalizing on AI Demand
Nvidia’s next earnings report is due on May 28. Despite recent market fluctuations, its stock price has risen alongside other large growth companies, influenced by favorable spending forecasts. Easing tariff tensions have alleviated investor concerns that import restrictions could hinder Nvidia’s growth, especially following the company’s announcement to relocate some manufacturing to the U.S. Nevertheless, Nvidia remains susceptible to tariff changes; shifts in policy could significantly affect its stock performance. However, sustained investments in AI suggest a potentially promising long-term trajectory for Nvidia.
## Investing in Growth: Vanguard Growth ETF Overview
For those seeking a straightforward investment vehicle, the Vanguard Growth ETF offers an expense ratio of just 0.04% with a minimum investment of $1. This ETF provides broad exposure to leading growth stocks. Historically, while it may underperform during market downturns, it tends to outperform the S&P 500 during growth periods. Over time, betting on major tech companies through this ETF has proven to be a profitable strategy.
## Should You Consider Investing in Vanguard Growth ETF?
Before investing $1,000 in the Vanguard Growth ETF, potential investors should weigh their options carefully. Recent analyses from Motley Fool highlight ten stocks they believe present significant investment opportunities—none of which include the Vanguard Growth ETF. This list features stocks that have historically yielded impressive returns.
Investors should remain informed and cautious while analyzing growth potential across various sectors and stocks to make sound investment decisions.
