Since the midterm elections last week, there’s been some growing apprehension from investors about what comes next for the markets. The S&P 500 (SNPINDEX:^GSPC) is, after all, trading at high levels as it has continued to reach new records this year.
In the past month, however, the index has declined by more than 3% (as of Monday’s close). For it to fall into correction territory, it would need to fall 10% or more from its high of about 7,844, which would put it around 7,060. It’s a steep fall, but with economic and political uncertainty potentially weighing on the markets, could it happen?
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The index’s vulnerability to tech makes a steep drop a possibility
The last time the stock market went into a deep tailspin was in March, when there was uncertainty about the Federal Reserve, interest rates, and the overall economy. That month, the S&P 500 would fall to its low for the year of just over 6,300.
During March, the index declined by roughly 5.1%. And tech stocks in particular fared poorly. The Roundhill Magnificent Seven ETF, which tracks the leading tech stocks, declined by even more — 5.6%.
Nowadays, there are once again concerns related to tech about high valuations, excessive spending on artificial intelligence, and earnings reports that leave many investors wanting more.
The S&P 500’s recent dip after the midterms is a reminder that the markets aren’t on all that solid a footing. And with many tech stocks still trading at high valuations and making up sizable positions in the S&P 500, they could weigh down the index in the near term.
Another potential rate hike before the end of the year may prove to be the biggest test for the index in 2026.
Investors have many options for diversifying and reducing risk
While investing in S&P 500 index funds may be the default option when it comes to tracking the overall market for the long term, there are many different types of exchange-traded funds (ETFs) that can help provide diversification while keeping risk low.
For investors, now may be an optimal time to focus on value-oriented investments and funds, such as the Vanguard Morningstar Value ETF. It gives investors exposure to value stocks while charging low fees and paying an above-average yield.
