Vanguard S&P 500 ETF is trading near record levels as investors remain optimistic about a long-awaited relief package

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Dec 9, 2020
  • The slowest U.S. jobs growth in six months raised investors' expectations for a new fiscal stimulus
  • Any bad news with the covid vaccine or delays in the stimulus could change the positive trend of this ETF
  • If the price falls below the $300 support level, it would be a firm "sell" signal

Vanguard S&P 500 ETF has advanced from $200 above $340 in less than several months, and the current price stands around $336. The price of this ETF is trading near record levels, but the risk/reward ratio is not suitable for long-term investors.

Fundamental analysis: The risk/reward ratio is not suitable for long-term investors

Vanguard tracks the S&P 500 and gives you exposure to 500 of the most significant public companies in the United States. The U.S. released the Nonfarm Payroll report last week, the country added just 245K new jobs in November, which raised investors’ expectations for a new fiscal stimulus.

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The U.S. stock market remains supported after Nancy Pelosi said she is hopeful of getting a coronavirus relief deal.

The jobs report disappointed, and the investors’ main event is the outcome of the stimulus budget fights in the U.S. Investors remain optimistic about a long-awaited relief package to mitigate the economic damage from the coronavirus pandemic, and for now, the U.S. stock market remains in a bull market.

“Jobs report shows the economic recovery is stalling and warns the “dark winter” would exacerbate the pain unless the U.S. Congress passes a coronavirus relief bill immediately,” said President-elect Joe Biden.

Positive updates on the COVID-19 vaccine development will certainly lift Vanguard S&P 500 ETF in the short term, but any bad news or delays in the stimulus could change this ETF’s positive trend.

Vanguard S&P 500 ETF is correlated with the S&P 500 index that continues to trade near record highs. Vanguard 500 is also supported by the fact that the U.S. Food and Drug Administration is likely to approve the coronavirus vaccine in the upcoming days.

Despite this, the risk/reward ratio is not suitable for long-term investors, and there are some obvious risks when it comes to buying Vanguard 500 ETF. The U.S. stock market could enter the correction phase, and if this happens, the Vanguard 500 ETF will probably be at lower price levels.

Technical analysis: Vanguard 500 ETF continues to trade in a bull market

The U.S. stock market could enter the correction phase, but for now, this ETF remains in the “buy” zone, and there is no indication of the trend reversal.

Data source: tradingview.com

The critical support levels are $300 and $280, $340, and $350 represent the resistance levels. The trendline on the chart above also represents a firm support level, if the price breaks this trendline, it would be a firm “sell” signal, and we have a free way to $300.

As long the price is above this trend line and $300 support, this ETF continues to trade in a bull market.

Summary

The U.S. stock market could enter the correction phase, but for now, this ETF remains in the “buy” zone, and there is no indication of the trend reversal. Positive updates on the COVID-19 vaccine development will certainly lift Vanguard S&P 500 ETF in the short term, but any bad news or delays in the stimulus could change this ETF’s positive trend.

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