The S&P 500 has been hovering around its all-time high for the past few weeks, and the Nasdaq hit a fresh intraday high on March 1, surpassing even its lofty 2021 peak. To say the stock market has rebounded strongly from 2022's bear market would be an understatement.
But this doesn't mean that there aren't some excellent opportunities to put money to work in the world of exchange-traded funds (ETFs). Here are three in particular that look attractive as we head into spring.
The small-cap valuation gap
In January, I wrote about how small-cap stocks were trading at their lowest price-to-book valuations relative to the S&P 500 in 25 years, and that the last time the valuation gap was this large, small-cap stocks outperformed the S&P 500 for more than a decade.
Well, since then, the gap has widened even further. Primarily fueled by stellar performance from megacap stocks like Nvidia and Meta, the S&P 500 has handily outperformed the Russell 2000 small-cap index in the first two months of the year, 7.9% versus 2.6%.
So, while the Vanguard Russell 2000 ETF (VTWO 0.38%) looked like an attractive way to invest in small-cap stocks a couple of months ago, it looks even more attractive now.
A smart time to invest in REITs
Real estate investment trusts (REITs) are highly sensitive to interest rates. Some of the best-run and best-performing REITs have dramatically underperformed the market over the past year and a half or so. And the primary reason is the pressure put on these high-yielding stocks by rising interest rates, rather than any weakness in the businesses themselves.
While inflation and higher interest rates have persisted for longer than many experts had expected, the overwhelming consensus is that the Fed will start to lower interest rates later this year and will continue to do so for a while. According to the CME Group FedWatch tool, the current median expectation is for four 25-basis-point rate cuts by the end of 2024 and another two in the first half of 2025.
If this proves to be the case, it could be a positive catalyst for the real estate sector. So, if you don't already have a ton of REIT exposure in your portfolio, it could be a smart time to buy the Vanguard Real Estate ETF (VNQ -0.15%).
The "other 493" stocks have underperformed
Over the past few years, a disproportional amount of the S&P 500's performance has been driven by the largest companies in the market (you've probably heard them referred to as the "Magnificent Seven"). And the same has been true so far in 2024, with the Magnificent Seven outperforming the overall S&P 500 by more than 7 percentage points through the first two months of the year.
On the other hand, this means that the other 493 stocks in the S&P 500 have collectively underperformed. In fact, the S&P 500 equal-weight index is only up by 3.2% this year, compared to an 8% total return from the weighted S&P 500.
Over the long run, however, the equal-weight S&P 500 has an impressive track record of performance and has actually outperformed the benchmark index. So, for patient long-term investors, it could be a good time to add the Invesco S&P 500 Equal Weight ETF (RSP -0.11%) to your portfolio.
To sum it up, just because the stock market is reaching all-time highs doesn't mean that there aren't opportunities. These three ETFs could be excellent choices for patient investors to take a closer look at.