S&P 500 Forecast: Vanguard ETFs Set to Outperform in 2025

According to a recent report, the S&P 500 may finish the year strong, but five Vanguard small-cap ETFs are predicted to outperform it in 2025. Factors such as a valuation gap and a favorable interest rate environment could boost small caps, despite potential economic adversity.

Date: 11-12-2024

AI Rating: 7

Market Outlook

The report presents a bullish outlook for the S&P 500, forecasting a possible yearly gain exceeding 30%, which could influence market sentiment positively. The prediction that Vanguard’s small-cap ETFs will outperform the S&P 500 in 2025 indicates a growing interest in small-cap stocks due to their favorable valuation compared to large-cap stocks.

Valuation Gap

Notably, the S&P 500 trades at around 27 times earnings, while the Vanguard ETFs reportedly have lower earnings multiples. This significant valuation gap may prompt investors to shift their focus towards small-cap stocks, driving up their prices.

Interest Rates

Additionally, the report highlights the Federal Reserve’s trend of lowering interest rates, which historically benefits small-cap stocks more than large-cap stocks. Lower interest rates can enhance borrowing conditions for small companies, potentially improving their growth prospects, which could lead to higher stock prices.

Potential Risks

However, the report also warns of possible economic challenges such as the implementation of high tariffs that may adversely affect small-cap performance. If the economic environment deteriorates, small shares may underperform large caps, affecting returns.

Long-term Outlook

Despite the risks, the prospect of outperformance by small-cap ETFs creates an optimistic view for investors, suggesting long-term growth potential. Overall, if trends in lower interest rates and valuation gaps persist, we may see rising stock prices for small-cap-focused funds in 2025.

Stocks: VB VBR VIOO VTWO VTWG