Macroeconomic and political events can impact markets, especially in the short term. The election results propelled broader indexes like the S&P 500 and Nasdaq Composite to new heights.
In the two days after the election, five Vanguard sector exchange-traded funds (ETFs) made new all-time highs: the Vanguard Information Technology ETF(NYSEMKT: VGT), Vanguard Consumer Discretionary ETF(NYSEMKT: VCR), Vanguard Communications ETF(NYSEMKT: VOX), Vanguard Financials ETF(NYSEMKT: VFH), and the Vanguard Industrials ETF(NYSEMKT: VIS).
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All five ETFs mirror the performance of a stock market sector by investing in dozens, if not hundreds, of companies. The expense ratio for each fund is just 0.1%, or $1 for every $1,000 invested -- which is reasonable considering it would be difficult to replicate the level of diversification these funds offer.
Here's what's driving each fund and whether they are worth buying now.
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1. Vanguard Information Technology ETF
Vanguard's tech-focused sector ETF blasted to a new all-time high -- driven by top holdings such as Nvidia, Microsoft, and Apple. Nvidia became the most valuable company in the world, surpassing $3.64 trillion in market cap on Thursday. Combined, Nvidia, Microsoft, and Apple now exceed $10 trillion in market cap and make up 44% of the Vanguard Information Technology ETF.
Over the last few years, the tech sector has proven it can do well despite high inflation, supply chain challenges, declines in consumer spending, and other challenges. It is also on the cutting edge of artificial intelligence (AI). So despite its lofty price-to-earnings (P/E) ratio of 46.4, the Vanguard Information Technology ETF remains a top choice for investors looking for a low-cost way to invest in market leaders.
2. Vanguard Consumer Discretionary ETF
The Consumer Discretionary ETF hit an all-time high on Thursday, but not for the reasons you may expect. Top holdings in the fund -- such as Home Depot, Lowe's, McDonald's, and Starbucks all fell after the election -- likely due to concerns that new policies such as tariffs could impact companies with overseas exposure. And that new economic policies could be inflationary -- which could further impact already strained consumers.
Rather, the reason the ETF as a whole has been surging is because of its top two holdings -- Amazon and Tesla. Although folks may think of both companies as tech stocks, Amazon and Tesla are both technically in the consumer discretionary sector. Both stocks rose after their latest earnings reports. Amazon is growing revenue and profits at an impressive rate and remains the undisputed leader in cloud computing. Tesla continues to struggle but had solid recent earnings results. Tesla has a ton of upside potential from autonomous vehicles, robotaxis, robotics, and more. However, its valuation is pricey as research and development in these efforts is expensive and has yet to translate to bottom-line results. Tesla stock received an extra boost after the election due to its CEO's support of President-elect Donald Trump.
The Vanguard Consumer Discretionary ETF could be a good buy if you like Amazon and Tesla. But given the sector's wide variety of holdings -- from blue chip dividend stocks to high-flying growth stocks, some investors may be better off selecting their favorite individual holdings rather than piling into the ETF.
3. Vanguard Communications ETF
Just under 50% of the Vanguard Communications ETF is in Alphabet, Meta Platforms, and Netflix. Other top holdings include telecom companies like Verizon Communications, AT&T, and T-Mobile and more traditional media giants like Comcast. Unlike the tech or consumer discretionary sectors, communications is a surprisingly good value. The Vanguard Communications ETF sports a 25.7 P/E ratio, which is below the S&P 500 P/E ratio of 30.3. Despite hovering around all-time highs, Alphabet has just a 24 P/E and Meta has a 28 P/E.
The communications sector is vulnerable to economic cycles, as a decline in advertising spending would heavily impact Alphabet and Meta and strained consumers could mean less spending on entertainment and streaming services. Still, the Vanguard Communications ETF could be a good buy for investors who want more exposure to growth but at a better value than can be found in a tech of consumer discretionary sector ETF.
Financials were the best-perming sector on Nov. 6, with the Vanguard Financials ETF surging 6.6% in a single session. Financials could benefit from lower regulation, more lenient policies regarding mergers and acquisitions, and higher interest rates. Weaker consumer spending would hurt many banks and credit card companies, but that could be more than offset by business-to-business sales and dealmaking.
The Vanguard Financials ETF used to sport a yield of around 2.5%, but big gains in the fund have pushed the yield down to 1.7%. It's not great, but it is still higher than the market average of 1.2%.
Many bank and insurance companies pay higher yields than the Vanguard Financials ETF. In contrast, a credit card company like Visa has a lower yield because it prefers to allocate capital toward growth and stock buybacks. Some investors may prefer to target a specific industry or companies within the sector rather than going with the Vanguard Financials ETF.
5. Vanguard Industrials ETF
Industrials is another sector that could benefit from less regulation and favorable policy toward U.S. industrial output and manufacturing -- as long as it leads to economic growth.
The Vanguard Industrials ETF is unique because it includes hundreds of holdings, with no individual holding making up more than 4% of the fund. It provides exposure to a variety of end markets, such as industrial conglomerates, railroads, defense contractors, agriculture, construction, and more.
The Vanguard Industrials ETF offers investors plenty of diversification and a balance between growth and value. However, the strong performance from the sector has compressed the fund's yield down to just 1.2%.
Maintain a long-term view
When buying an individual stock or stock market sector at an all-time high, it's essential to take a position only if you have a long-term mindset. Riding a red-hot sector or stock higher to make a quick buck is a great way to lose your shirt.
All five of the discussed sectors were hot going into the election and have remained hot post-election because the results of the new administration could have favorable near-term benefits for these types of companies. However, many top holdings have gotten much more expensive. The higher valuations rise, the more pressure will be put on companies to deliver earnings and the greater the potential volatility will be if actual results fall short.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Daniel Foelber has positions in Starbucks. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Home Depot, Meta Platforms, Microsoft, Nvidia, Starbucks, Tesla, and Visa. The Motley Fool recommends Lowe's Companies, T-Mobile US, and Verizon Communications and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
