The S&P 500(SNPINDEX: ^GSPC) has advanced by 35% year to date, notching more than four dozen record highs in the process. Factors contributing to that upside include enthusiasm about artificial intelligence (AI), strong corporate earnings, and the Federal Reserve’s pivot to interest rate cuts.
More recently, stocks have surged on expectations that President-elect Donald Trump will improve the environment for businesses by cutting corporate tax rates and reducing regulation. Tom Lee, head of research at Fundstrat Global Advisors, expects the stock market’s momentum to continue through the end of the decade.
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Specifically, Lee believes the S&P 500 will hit 15,000 by 2030. That would be a 152% increase from its current level of 5,950, requiring an annualized growth rate of 16.7% over the next six years. His prediction is based on the assumption that technology stocks will shine as businesses lean on AI to offset the impact of a global labor shortage he estimates will reach 80 million workers by 2030.
Investors can gain exposure to that potential upside by simply purchasing a low-fee S&P 500 index fund like the Vanguard S&P 500 ETF(NYSEMKT: VOO).
The Vanguard S&P 500 ETF tracks the performance of the index, which has as its components 500 of the largest public U.S. companies, including growth stocks and value stocks from every market sector. Like the benchmark index, the exchange-traded fund is now heavily weighted toward the technology sector, which includes an array of companies well positioned to benefit from artificial intelligence.
The 10 largest holdings in the Vanguard S&P 500 ETF by weight are:
Apple: 7.3%
Microsoft: 6.6%
Nvidia: 6.1%
Alphabet: 3.6%
Amazon: 3.6%
Meta Platforms: 2.6%
Berkshire Hathaway: 1.7%
Broadcom: 1.6%
Tesla: 1.5%
Eli Lilly: 1.4%
Several of these are already major players in the AI economy. For instance, Amazon, Microsoft, and Alphabet’s Google are the three largest public cloud infrastructure providers worldwide, and collectively account for more than 60% of cloud infrastructure spending. That leaves them well positioned to benefit as businesses seek processing power to support their AI systems.
Similarly, Nvidia is the market leader in data center accelerators and AI networking gear, and it has a durable competitive advantage thanks to its CUDA software platform. Broadcom is the leader in networking chips and application-specific integrated circuits (ASICs), two markets expected to grow quickly due to rising demand for AI infrastructure.
With a global labor shortage threatening to blunt business growth over the coming decade, technology companies could help alleviate the strain. Businesses have historically turned to innovative technologies to overcome productivity headwinds, and the result has typically been tremendous outperformance across the sector. AI fits the bill perfectly.
Fundstrat’s Lee made that point earlier this year. “Between 1948 and 1967, there was a global labor shortage and technology stocks went parabolic. And between 1991 and 1999, there was a global labor shortage and technology stocks went parabolic. So, this is what’s happening today,” he told clients.
Image source: Getty Images.
Investors should always view price targets skeptically, even when those price targets apply to the entire stock market. Wall Street has traditionally done a bad job forecasting the future of the S&P 500.
“Over the past four years, the average delta between the median S&P 500 forecast at the beginning of the year versus the level that the S&P 500 finished the year was 17 percentage points,” according to Goldman Sachs. Given how much Wall Street struggles to accurately predict how the market will behave even across the short horizon of a single year, the odds of a prognosticator making an accurate multiyear forecast are remote at best.
How the S&P 500 actually performs through the end of the decade will depend on a host of economic fundamentals, valuations, and emotionally driven factors that are harder to quantify. And while most of the latest data points suggest that the U.S. economy is fairly strong, the S&P 500 currently trades at 22.2 times forward earnings, a material premium to its five-year average of 19.6. In fact, its current forward earnings multiple is the most expensive valuation the S&P 500 has had in more than three years, according to FactSet Research.
Here’s the bottom line: With an expense ratio of 0.03%, the Vanguard S&P 500 ETF offers retail investors cheap and easy exposure to the S&P 500, which includes many of the most influential companies in the world. That compelling investment thesis is one reason Warren Buffett has repeatedly recommended an S&P 500 index fund to small investors. But investors should keep their expectations in check in the coming quarters and years. Lee’s prediction that the S&P 500 will rise by 16.7% annually through the end of the decade may be overly optimistic.
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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, FactSet Research Systems, Goldman Sachs Group, 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.
