WEEKLY BRIEF | Midterms, Markets and a Tech Hangover

Hello, and welcome to the IVA Weekly Brief for Wednesday, November 4.

There are no changes recommended for any of our Portfolios.

The full results of yesterday’s midterm elections aren’t in yet, but Democrats have won control of both the House and Senate. I leave my politics out of this newsletter, but here’s what I will say about elections and markets.

U.S. stocks haven’t been among the world’s best performers for more than a century because one party or the other held power. They’ve done well because what remains constant from one election to the next is a predictable process, orderly transitions and the rule of law. Businesses thrive on that kind of stability, and investors reward it.

Consider that since 500 Index (VFIAX) launched in 1976, the flagship index fund has posted a gain in the 12 months following all 12 midterm elections, regardless of who won or lost. Returns over those 12-month periods ranged from 5.2% to 33.1%.

Of course, that’s not a forecast. Stocks have risen in more than 80% of all 12-month periods over the past 50 years—election or not. That’s the real lesson: Whether Democrats or Republicans hold the majority in Washington, the market’s long-term direction has been up.

As investors, what matters most for our long-term success is what we control: saving more than we spend, staying invested, keeping costs low and diversifying. Check those boxes, and our odds of investment success are darn good.

The bottom line: Whatever you think of yesterday’s results, as I recently wrote, keep politics out of your portfolio.

The ABCs of Losses

As I discussed with Premium Members in Monday’s Monthly Recap, a few tech giants tripped up spectacularly last week. Alphabet (aka Google) lost nearly half a trillion dollars of market value in a single day, dropping 12.6% as its core advertising business slowed. (Technically, the index providers, and hence Vanguard, classify Google as a communication services stock, but it’s a tech stock in my book.) Intel reported disappointing earnings and tumbled 28.6% in a day.

The high-profile drops came last week, but the slide started earlier. Information Technology Index (VITAX or VGT) peaked nearly a month ago, on Oct. 6.  As the chart below shows, the sector fund is down 11.2% since then, while 500 Index, which peaked the same day, is off only 3.2%. Not every tech giant has stumbled (Microsoft has held up), but the sector as a whole has clearly cooled.

Will we look back and say Oct. 6 was the top of the AI rally? Time will tell.

I’m on the record saying technology stocks, or artificial intelligence stocks more specifically, are in a bubble. But I’ve also said I have no idea how long the bubble will last or how far it will inflate.

For example, former Fed Chair Alan Greenspan famously warned of “irrational exuberance” in the rising stock market in December 1996. He was way early. The S&P 500 roughly doubled after his comments before the bubble finally burst in March 2000.

For perspective, even after the recent slide (through the end of October), Information Technology Index is up 1,612% over the past 15 years, or 20.8% per year. That’s far ahead of 500 Index’s 690% return (a 14.8% annual pace).

The more useful takeaway: Tech stocks are unlikely to compound at better than 20% a year over the next 15 years. But I’d also wager 500 Index clocks in below its 14.8% pace.

Does that mean you should avoid the stock market? No. As I’ve been saying all year, you don’t have to hitch your portfolio to AI stocks, and you shouldn’t.

Keep investing. Stay diversified.

Our Portfolios

Our Portfolios are showing solid gains for the year through Tuesday. The Aggressive Portfolio is up 12.9%, the Aggressive ETF Portfolio is up 10.7%, the Growth Portfolio is up 12.0%, the Moderate Portfolio is up 11.1% and the Conservative Portfolio is up 7.2%.

This compares to an 11.7% gain for Total Stock Market Index (VTSAX), a 9.6% return for Total International Stock Index (VTIAX), and a 0.6% decline for Total Bond Market Index (VBTLX). Vanguard’s most aggressive multi-index fund, Target Retirement 2070 (VSNVX), is up 9.8% for the year, and its most conservative, LifeStrategy 20/80 (VASIX), is up 1.9%.

IVA Research

Yesterday, in Nibbling Around the Edges: 2026, I shared with Premium Members my annual look at which Vanguard managers have skin in the game—and which are not invested in the funds they run.

Until my next IVA Weekly Brief, have a safe, sound and prosperous investment future.