The S&P 500 continues to push higher on the anticipation of forthcoming interest rate cuts, but some market experts may be wary of certain names heavily concentrated in the index that are exhibiting high valuations. Either way, an equal weight approach can help reduce any market anxiety.
In addition to equities continuing to push higher, the bond market is also feeding into the positivism with lower yields in benchmark Treasury notes. That could provide additional confirmation that both the equities and bond markets are in unison and thus, foresee rate cuts ahead. Per a Forbes report, investors are eyeing September for potential rate cuts after a cooler-than-expected labor report.
While this sentiment bodes well for the market in general, as mentioned, there could be anxiety that certain market valuations could be higher than what they truly reflect. In essence, could there be a proverbial bubble occurring in certain Magnificent Seven names?
If that’s indeed the case, a market correction could upset portfolios that tilt heavily towards the S&P 500, which is rich in big tech constituents. Given the concentration in large cap companies rallying from the artificial intelligence (AI) theme, it could make for a bumpy ride should markets get volatile.
“I think equities are really expensive in the United States. They’re right back to where they were at the end of 2021, narrow as all hell, late cycle of the economy,” said Jeffrey Gundlach, DoubleLine Capital’s founder and CEO, via a webcast interview with David Rosenberg, founder and president of Rosenberg Research.
A Balanced Approach
Whether there’s upside or downside ahead for the S&P 500 moving forward for the second half of the year, investors should consider the +Invesco S&P 500 Equal Weight ETF+ (RSP ). The fund utilizes a balanced approach by tracking the S&P 500® Equal Weight Index, which equally weights the stocks in the S&P 500® Index.
As of June 4, the portfolio tilts heavily towards midcap value and blend, offering additional exposure to midcap names as opposed to heavily skewing towards large cap stocks. Additionally, under the hood of RSP are familiar AI names like Nvidia, but exposure won’t be exorbitant. This helps minimize concentration risk, especially in holdings that exhibit high volatility.
Given the balanced approach to the index, RSP is able to capture upside when the index trends higher and conversely, protect against the downside with an equal weight approach, thereby mitigating concentration risk.
For more news, information, and analysis, visit the Innovative ETFs Channel.
