SPY ETF

JPMorgan analysts are offering a fresh perspective on managing market volatility: betting on the VIX (volatility index) while trimming downside hedges on the SPDR S&P 500 ETF SPY. Here's what they're suggesting and why.

Look at ETFs to capitalize on the optimistic forecast for the S&P 500.

There are three reasons to be bullish about 2025. The long and short of it is that economic data remains solid, if a little spotty; consumers remain resilient, and there is broad-based demand globally.

The 2024 trends and outlook for 2025 are reasons for the market to show some holiday cheer and rally through the year's end. Not only is the S&P 500 NYSEARCA: SPY in an earnings-driven uptrend but the stage is set for tailwinds to develop next year and sustain the trend into 2026.

Post-election rallies have heightened SPY's valuation risks, necessitating caution and consideration of alternative investments. The underlying valuation is at historically high levels, either in terms of the Shiller CAPE ratio or relative to risk-free rates. Alternative ideas include REITs and dividend-focused ETFs (such as SCHD and NOBL).

Hold the SPDR S&P 500 ETF Trust due to Trump's victory and a favorable corporate tax environment, but the S&P 500 is expensive by 19 out of 20 metrics. Trump's policies, including potential tax cuts and tariffs, could boost corporate profits short-term but raise long-term inflation concerns. Despite a positive short-term outlook, the stretched valuation of the S&P 500 warrants caution and patience for better buying opportunities.

You should aim for a diversified portfolio, but instead of going as broadly as possible, it pays to use certain index ETFs to focus your investment.

This investment is part of Buffett's portfolio.

The SPDR S&P 500 ETF (SPY) was launched on 01/29/1993, and is a passively managed exchange traded fund designed to offer broad exposure to the Large Cap Blend segment of the US equity market.