The Vanguard S&P 500 ETF (NYSE:VOO) has moved sideways in the past six weeks as jitters in the bond market have coincided with strong earnings growth. It ended the week at $702, down by 1.8% from the year-to-date high.
VOO ETF Inflows are Soaring as its Performance Stalls
American retail and institutional investors are continuing their VOO ETF purchases. These fund has had over $131 billion in inflows this year, and is about to break the annual flow record of $137 billion it set last year.
VOO’s inflows are notable because the iShares S&P 500 ETF (NYSE:IVV) has had over $46 billion in outflows in the last month. The SPDR S&P 500 ETF (NYSE:SPY), on the other hand, has had just $7.4 billion in inflows in the last 30 days.
The Vanguard S&P 500 ETF (VOO) now holds over $1 trillion in assets under management, making it the largest fund in the industry. Much of this growth has been fueled by the “VOO and Chill” strategy, a passive investing approach where investors buy the ETF and hold it for the long term. VOO has also overtaken SPY in popularity, largely thanks to its lower expense ratio.
S&P 500 Index Has Become a Bargain
The ongoing VOO ETF accumulation is a sign that investors expect the S&P 500 Index to bounce back eventually. For one, FactSet (NYSE:FDS) data shows that the fund has become a bargain, trading at a forward price-to-earnings ratio of 19.1, slightly lower than the five-year average of 19.8. This figure is also slightly above the ten-year average of 19.0.
Its cheap valuation comes at a time when its constituent companies are seeing strong earnings growth. The second-quarter earnings growth was over 50%, much higher than what analysts were expecting. This growth was mostly because of the artificial intelligence boom and tariff refunds.
Analysts expect that earnings growth will continue in the near term. The average third quarter earnings growth estimate is 28.7%. Historically, the real figure normally comes up higher than these expectations.
VOO Has Formed Bullish Patterns
Technicals suggest that the VOO ETF is on the cusp of a strong bullish breakout. It has already retested the crucial support level of $696, its highest level on June 2nd this year.
The fund has formed a bullish flag pattern, which is made up of a vertical line and a descending channel. This pattern normally leads to a strong bullish breakout. It has also remained above the 50-day and 100-day moving averages.
Therefore, the ETF will likely have a strong bullish breakout, potentially to the all-time high of $715. A move above that level will point to more gains, potentially to $800.
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