Risk of a recession is abating as capital markets could see interest rate cuts this year with signs of cooling inflation. In turn, global investment firms like UBS are raising their targets for the S&P 500, which could open opportunities for income seekers.
UBS is part of a number of firms that are raising their forecasts for the index. Per a Markets Insider report, UBS is expecting the S&P 500 to hit 5,600 by year’s end, which translates to a 5.6% jump from its current level.
Incoming economic data caused the firm to reforecast its level prediction for the index. Other peers like Deutsche Bank and BMO Capital have also raised their targets upward.
“Since then, consensus 2024 GDP forecasts have increased from 1.6% to 2.4%,” UBS analysts noted. “At the same time, recession/tail risks have declined on a number of key metrics including economist surveys and the Chicago Fed’s Financial Conditions Index.”
In addition to the prospect of rate cuts, a driver for more S&P 500 gains is the expectation that strong corporate earnings will continue. First-quarter earnings reports indicate that companies are showing resilience in a high interest rate environment.
On the back of strong earnings projected for the index, that could clear the runway for income opportunities in the S&P 500. More specifically, investors may want to give the NEOS S&P 500 High Income ETF (SPYI ) a closer look.
A Flexible Income Option
Because of its active management, the fund is able to stay flexible in what could be a volatile market as we get deeper into an election year. The active management also removes the guesswork and constant supervision of one’s own portfolio while maintaining pliability if market conditions change.
Of course, a prime feature of SPYI is its income component, with a distribution yield of 12.10% as of April 30. It derives that income via a data-driven call option strategy that uses SPX Index options classified as section 1256 contracts that are subject to lower 60/40 tax rates.
As the fund’s "fact sheet":https://neosfunds.com/wp-content/uploads/SPYI-Fact-Sheet.pdf points out, SPYI can be used as an alternative to existing core equity allocations to realize this tax-efficient monthly income stream. At the same time, SPYI is able to capture upside when the index trends higher. Under the hood, the fund is top heavy in “Magnificent Seven” names like Microsoft and Apple.
Furthermore, that tax-efficient monthly income component is a prime feature of not only SPYI, but other NEOS funds. To get a glimpse of its full ETF product suite, click here.
For more news, information, and analysis, visit the Tax Efficient Income Channel.
