VTI: 3 Reasons Why The U.S. Stock Market Could Halt Its Growth

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VTI is a comprehensive ETF covering all segments of the US market with a low expense ratio.Analyst ratings for VTI's top holdings (Apple, Nvidia, Microsoft) show rising Hold ratings and fewer Strong ...

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Kathrin Ziegler Saying it’s time to stop buying the Vanguard Total Stock Market Index Fund ETF Shares (NYSEARCA:VTI) is like saying it’s time to stop investing in America—at a time when America seems stronger than ever and the market appears to be thriving. Especially in the wake of Trump’s election, the idea of stopping investments in America could be risky, particularly in terms of opportunity cost. However, there are signs that VTI might be approaching a point of overextension, and I have identified three key indicators. Why VTI I really appreciate the fact that VTI follows a benchmark like the CRSP US Total Market Index because I think it is highly representative of the entire US market. It uses a representative sampling technique and includes large, mid, small, and micro-cap stocks, all with an expense ratio of just 0.03%. In other words, VTI allows investors to capture all segments of the US market in one ETF, with an expense ratio lower than SPY’s (0.09%). Moreover, SPDR® S&P 500® ETF Trust (SPY) does not provide exposure to all sections of the US stock market. In my opinion, this is a significant advantage for anyone planning to start a long-term DCA (Dollar Cost Averaging) strategy in the US stock market.   Holding breakdown (Author_SheetsFinance Data) That's because VTI represents a balanced ETF, with approximately 20% exposure to mid-cap stocks and 9% to small-cap stocks, while maintaining a strong 71% exposure to large-cap stocks. It acts as a convergence point for the three main segments of the US stock market.   3 Reasons Why VTI Could Be Overextended In my opinion, the US total market is starting to look slightly overextended, with the risk of a slowdown or even stagnation following the extraordinary growth of the past two years. This is why I believe the appropriate rating for VTI is HOLD rather than BUY. a) Market sentiment To understand the sentiment behind an ETF, I usually examine the market sentiment of its top three holdings.   Top 3 Holding (Seeking Alpha) And even though the top three holdings represent only 15% of VTI’s portfolio, these stocks will likely drive overall market sentiment. In fact, Apple, Nvidia, and Microsoft each have a beta close to 1 with the S&P 500 and the broader market. It’s intriguing to take a quick look at analyst ratings and price action for these stocks. For example, AAPL, VTI’s largest holding, presents a fascinating case. For the first time this year, the stock price is aligned with the average between UP Price target and DOWN price target. AAPL Price target progression by Month (Author_SheetsFinance Data) Could this represent a breaking point? It might, especially when considering that the number of Hold and Sell ratings for AAPL has doubled since last quarter.   AAPL Analyst Consensus (Author_SheetsFinance Data)For NVDA, the number of Buy ratings has increased, but there has been a significant decline in Strong Buy ratings. Meanwhile, MSFT shows data more closely aligned with AAPL. b) Fundamental Analysis: Earnings Season Below Expectations Another point worth discussing is the Q3 earnings report. According to FactSet’s latest earnings report: In Q3 the number and magnitude of positive earnings surprises are below their 5-year averages [..] and  The percentage of companies issuing negative EPS guidance for Q4 2024 is 68% (54 out of 80), which is above the 5-year average of 58% and above the 10-year average of 62% [...] S&P500 Q4 Guidance (FactSet financial data and analytics.)  Considering that the forward 12-month P/E ratio is 22.0 (slightly higher than VTI’s P/E of 20.65) and above the 10- and 5-year averages, this could provide the market with a reason to start taking profits. While the earnings season has not revealed a critical situation, it has shown that growth is falling short of estimates. Given that the P/E ratio of the US stock market is higher than the 10-year average, the fact that EPS is not meeting expectations could signal a potential breaking point. c) Technical Analysis I’m not a big fan of technical analysis, but the earnings data has convinced me to try identifying a relatively large technical zone where the market might start considering profit-taking. In this case, applying the Fibonacci retracement on the 1W timeframe reveals an interesting statistical pattern. During the last bull market, the market typically began profit-taking in the gray zone, located between the 0.786 and 1 levels, a zone that also coincided with an overbought condition in the RSI indicator. VTI (TradingView)To summarize, this is a zone where buying power tends to give way to selling pressure. Currently, there isn’t a critical catalyst, and the market remains relatively stable. Risk: opportunity cost Naturally, holding the market instead of buying it carries an opportunity cost if VTI continues to outperform other geographic indices. It’s important to recognize that the US stock market often leads global stock market trends. In the recent past, a sideways movement in the US market has typically resulted in a downturn for global stock markets, including ETF like iShares MSCI World ETF (URTH). So, if investors decide not to buy US stock options, what else will they invest in? VTI - URTH (TradingView)This raises the question of opportunity cost: if I stop buying VTI to invest in something else, am I certain it won’t lead to a positive opportunity cost? That’s a significant consideration. While in the past this was a strong argument for global investors to remain exposed to the US stock market, we now need to account for the fact that US Treasury yields are higher than they’ve been in years. Many investors, including high-profile figures like Warren Buffett, are selling positions to roll over into short-term Treasury bonds. Conclusion  To conclude, in my opinion, the appropriate rating for VTI is HOLD. This is because we might be approaching a level where it becomes attractive for investors to take profits from their positions, especially considering that many tech stocks have reached their target price levels and analyst sentiment is starting to shift. Additionally, EPS and forward EPS projections are less positive than in the past, and from a technical perspective, we have reached an overbought level.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2486126670"}