Amid huge volatility and uncertainty, the S&P 500 emerged stronger in the third quarter, touching a series of new record highs. The broad market index wrapped up its best quarter since the fourth quarter of 2021, rising 5.5%, and recorded its best year-to-date performance at September end since 1997. The S&P 500 also notched its best September since 2013 and the fifth consecutive month of increase. 

SPDR S&P 500 ETF Trust SPY, the proxy version of the S&P 500 Index, gained 5.5% in the third quarter. While many stocks powered the ETF, we have highlighted five that led the portfolio. These stocks have a solid Zacks Rank #1 (Strong Buy) or #2 (Buy). These are Mohawk Industries Inc. MHK, Kellanova K, CBRE Group Inc. CBRE, Stanley Black & Decker, Inc. SWK and PulteGroup Inc. PHM. You can see the complete list of today’s Zacks #1 Rank stocks here.

While recession fears, geopolitical tensions, the fading AI craze, and looming elections led to some of the worst declines in July and August, rate-cut optimism buoyed the stock market. Investors shunned technology stocks in favor of smaller companies and other sectors, which are bigger beneficiaries of Fed rate cuts. 

The Federal Reserve kicked off the easing monetary era last month by slashing key interest rates by 50 bps to 4.75%-5% after holding it at a 23-year high for 14 consecutive months since July 2023. This marked the first rate cut since 2020 to address slowing economic growth and showed greater confidence in the fact that inflation is moving sustainably toward the 2% target level. 

The central bank projects two more rate cuts of another 50 bps in its final two meetings this year, due in November and December. It indicates another 100-bps rate cut next year and 50-bps in 2026, which means four rate cuts in 2025 and two in 2026 (read: Fed Initiates Rate Cuts: Top-Ranked Growth ETFs to Buy). 

Lower rates lead to reduced borrowing costs for mortgages, credit cards and other consumer and business loans. This helps businesses to expand their operations more easily, resulting in increased profitability. This, in turn, stimulates economic growth and boosts the stock market. 

Let’s take a closer look at the fundamentals of SPY.

SPY in Focus

SPDR S&P 500 ETF Trust holds 503 stocks in its basket, with each accounting for no more than 7% of the assets. This suggests a nice balance across each security and prevents heavy concentration. The fund is widely spread across sectors with information technology, financials, healthcare and consumer discretionary accounting for a double-digit allocation each. 

SPDR S&P 500 ETF Trust has an AUM of $585.5 billion and charges 9 bps in fees per year. It trades in an average daily volume of 46 million shares and has a Zacks ETF Rank #2 with a Medium risk outlook (see: all the Large Cap Blend ETFs here).

Below, we have highlighted the abovementioned five best-performing stocks in the ETF.