The SPY ETF Is an Attractive Long-Term Option to Buy in April


The SPDR S&P 500 ETF Trust (NYSEARCA:SPY), which tracks the returns of the S&P 500 index, has declined 8% since January. However, it is up almost 5% in the past month.

Man standing behind a Wall Street chart with S&P 500 on top of it. SPY stock.

Source: Funtap / Shutterstock

This largely tracks with the rest of Wall Street, which had wild swings in the first quarter of 2022. January and February brought significant declines to broader indices, whereas March has so far been a stronger month.

Similarly, the SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA:DIA) that follows the Dow Jones Industrial Average returned 3.9% over the last month. And another widely-followed exchange-traded fund (ETF), the Invesco QQQ Trust (NASDAQ:QQQ), returned 4.1% in the same period.

Meanwhile, on March 16, the Federal Reserve went ahead with the first interest rate hike since December 2018. Yet markets have been relatively calm since that decision.

Many investors now wonder what to expect from the market in April. I believe the recent decline in major indices provides a better entry point into ETFs like the SPDR S&P 500 ETF Trust. Therefore, buy-and-hold investors could consider buying SPY stock now.

Basics of the SPY ETF

The S&P 500 index gives access to the most important businesses from 11 industry sectors. In other words, this benchmark equity index roughly accounts for 80% of the stock market value, gauging the overall health of our economy.

Launched in January 1993, SPY is the oldest and largest ETF listed stateside. The fund has assets of more than $410 billion under management.

Given the market-capitalization-weighted structure of the S&P 500 index, larger companies comprise a greater portion of SPY. Consequently, the top 10 stocks account for nearly a third of the portfolio.

With a market cap of $2.7 trillion, Apple (NASDAQ:AAPL) leads the list with a 7.1% weighting. Next, we see three other tech giants: Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). Tesla (NASDAQ:TSLA) also makes an appearance in the top five.

SPY stock allows investors to take part in the growth of the largest names in our economy. Thus, it offers a reliable long-term opportunity that overlooks short-term volatility. The stock market correction at the beginning of the year has taken the froth out of many names like the SPY ETF, creating a better entry point.

Why I’d Buy SPY Stock Now

Since its launch in 1957, the S&P 500 index has achieved a historic annualized average return of over 10%. Some extraordinary years like 2021 saw returns of around 28%, whereas 2008 saw a drop of about 38%.

However, the overall theme stays the same: buying a low-cost fund such as SPY gives diversified access to some of the best companies.

A highly positive market sentiment dominated much of 2021. Then, SPY stock steadily rose to its early January record high of $479.98.

However, concerns about lofty valuations quickly resulted in a correction of about 15% in late February. Since then, the ETF has rebounded and is now changing hands around $450. Yet, it is still down 5.6% year-to-date (YTD).

The fund trades at 22 times trailing earnings and 4.3x book value. Its price currently supports a dividend yield of 1.4%. Moreover, with an annual expense ratio of less than 0.1%, SPY is one of the cheapest ETFs in the market. Thus, it deserves to be included in retail investment portfolios.

The Bottom Line on SPY Stock

Many investors fear further rate hikes by the Fed could spell doom for the S&P 500, as well as many tech stocks. However, historical data shows the outcome of rate hikes might not be as clear-cut as feared. For example, during the central bank’s last tightening cycle from December 2015 through December 2018, the S&P 500 rose more than 20%.

Additionally, Russia’s invasion of Ukraine is continuing, and the coronavirus is still with us. Therefore, the ETF may easily see further volatility and profit-taking in 2022. However, investors with a longer-term horizon may consider further dips in SPY as a buying opportunity. I’d especially keep a close eye on its 2022 low of $410.64 and expect it to provide critical support.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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