Key insights
- The article suggests that while the S&P 500 has performed well, future market conditions (rising inflation, slowing GDP) may require more selective investing. It highlights an anticipated AI-fueled earnings boom, particularly in the tech sector, with strong growth forecasts for 2026 and 2027. The author recommends focusing on high-quality earnings growers with healthy balance sheets, potentially through ETFs like the Invesco S&P 500 Quality ETF, as a way to capture this trend and potentially outperform broad market indices like VOO.
For most investors, simply investing in the S&P 500 has delivered strong returns over the past several years. Its high-tech concentration has kept investors in the themes that are leading the market higher.
But with inflation risks rising, consumer sentiment low, and GDP growth slowing, it's time to evaluate whether the future can look like the past. Investing in broad-market ETFs, such as the Vanguard S&P 500 ETF (VOO +0.27%), has worked for a while.
But investors might need to be more selective going forward. Here's one option for investors to consider.
The one thing we're very likely to keep seeing over the next 12 to 18 months is an artificial intelligence (AI)-fueled earnings and revenue boom. In Q1 2026, S&P 500 earnings grew by more than 28% year over year, the best number since 2021.
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The next several quarters could look similarly strong. Full-year 2026 earnings growth is currently forecast at around 22%. 2027 could see another 15% earnings growth on top of that. In both years, the tech sector is likely to drive the gains.
That means investors should be looking to upgrade their exposure to these earnings success stories. I'm not talking about adding a pure tech ETF because that's where the biggest earnings growth is coming from. I'm talking about focusing more directly on these high-quality earnings growers -- the companies with healthy balance sheets and the ability to grow in multiple economic environments.
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That's why I'm looking at the Invesco S&P 500 Quality ETF (SPHQ +0.72%). It targets three fundamental measures in its selection process: return on equity (ROE), the accruals ratio, and the financial leverage ratio. This helps weed out some of the weaker S&P 500 components and lean heavier into the leaders.