The Vanguard S&P 500 (VOO) and the Schwab US Dividend Equity (SCHD) ETFs have done well this year and are sitting near their all-time high. The SCHD fund was trading at $83.75, a few points below its all-time high of $84.56, while VOO was at $530. They have risen by 21% and 13%, respectively. Here are three catalysts that could push them higher this year.
Federal Reserve interest rate cuts
The first important catalyst for the VOO and SCHD ETFs is the Federal Reserve, which has started cutting interest rates.
In its decision last week, the bank decided to slash them by 0.50%, bigger than what most analysts were expecting.
The bank has signalled that it will continue cutting rates in the next few meetings because of the weakening labor market.
Rate cuts have a major impact because the amount of money that have been saved in money market funds as investors took advantage of the 5% interest rates.
Many investors will return to stocks with money market funds no longer generating these returns. In this, they will likely move to the best-in-class funds like those tracking the S&P 500 index and the SCHD fund.
The other implication of lower interest rates is that corporate actions will start bouncing back. Just this week, Blackstone acquired Smartshee, and analysts expect that the trend will continue. M&A deals worth over $1.5 trillion have been announced this year. Stocks often do well when M&A activity is booming, as we saw in 2021.
The Fed is not the only central bank that is cutting rates. Banks like the Swiss National Bank (SNB), European Central Bank (ECB), Bank of England (BoE), and Riksbank have slashed rates, lowering borrowing costs.
Strong earnings growth
The next important catalyst for the VOO and SCHD ETFs is corporate earnings, which have been relatively strong this year.
Data by FactSet shows that companies in the S&P 500 index had a blended earnings growth of over 10% in the second quarter.
The company expects third-quarter earnings growth to be 4.6%, which will mark the fifth quarter of earnings growth. While this growth rate will be lower than that in the second quarter, it is still a good number.
There is also a chance that companies will report stronger results than expected as they have done in the past. As such, stocks will likely do well because of this earnings growth.
US election as a catalyst
The other important catalyst for the SCHD and VOO fund is the US election, which will happen in November.
Historically, stocks tend to have some volatility ahead of the US general election as the uncertainty on who will be the president rise.
They then surge after the election ends as investors embrace the new normal in the financial market. In this, investors realise that American stocks do well regardless of who is in the White House. The S&P 500 index has always risen to a record high during most presidential terms.
The S&P 500 and the SCHD also have technical catalysts ahead since they have moved above all moving averages, pointing to more upside. Additionally, analysts from most banks, including Goldman Sachs and Bank of America have boosted their forward guidance for the S&P 500 index.
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