Key Points
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Stocks plummeted after the mid-term elections, with AI stocks leading the way down.
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However, if the market keeps crashing, this could be a great opportunity to buy some top ETFs.
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Stocks plunged on Thursday, Nov. 5, with the S&P 500 index (SNPINDEX: ^GSPC) falling 4.4% and the Nasdaq Composite sinking 5.5%. The downturn was led by artificial intelligence infrastructure (AI) stocks, with Nvidia (NASDAQ: NVDA) tumbling 9.3% on the day, Broadcom (NASDAQ: AVGO) plunging 10.4%, Advanced Micro Devices (NASDAQ: AMD) crumbling 17.3%, and Micron (NASDAQ: MU) crashing 17.5%. All four stocks had top-10 weightings in the S&P 500 entering the month.
The major market indexes are closely tied to the AI trade, with nine of the S&P 500’s top 10 holdings significantly involved in the technology. In fact, Apple is the only company in the group that hasn’t aggressively pursued it. Those nine stocks, meanwhile, account for approximately 30% of the index. As such, where AI stocks go, the market is likely to follow.
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At the center of the market pullback was the market digesting the impact of the U.S. midterm elections, which saw a sweeping victory for the Democratic Party, which will take control of both the House and Senate in the next Congress, as well as many important state governorships, including Texas. Many newly elected officials quickly called for a moratorium on the current AI data center build-out, a move that faced backlash from voters.
Despite the political shift, I wouldn’t write off AI stocks just yet. Hyperscalers were already starting to build more data centers overseas, and the political climate could push more projects to countries outside the U.S. There has also been talk of offshore data centers, and Elon Musk and Space Exploration Technologies (NASDAQ: SPCX) are pursuing plans to deploy data centers in space.
Meanwhile, AI companies are also looking for other creative ways to continue the build-out, with Nvidia reportedly in talks with Brightspeed to buy and repurpose 130 old telco buildings into small data centers. While this would still require permits, they already have access to power, and it should be easier to get approved. Meanwhile, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) announced plans to build a self-sufficient AI data center in Republican-held Wyoming with carbon capture, powered by natural-gas fuel cells supplied by Bloom Energy (NYSE: BE) that do not draw any power from the grid.
The tech sector has helped lead the market higher for much of the past two decades, and I think that will continue. As such, here are two exchange-traded funds (ETFs) I’d be loading up on if the market continues to crash.
1. The Vanguard S&P 500 ETF
While diversified, the S&P 500 always lets the cream rise to the top, which is why it is currently heavily tied to AI stocks. This Darwinian survival-of-the-fittest approach has led the index to beat 86% of actively managed large-cap funds over the past decade, and is the main reason why I want to be a buyer in any market crash. Meanwhile, with a scant 0.03% expense ratio, the Vanguard S&P 500 ETF (NYSEMKT: VOO) is one of the top ETFs that track the index.
Over the past decade, the ETF has generated a strong average annual return of 15.4% as of the end of October.
2. The Invesco QQQ Trust
As noted above, tech stocks have been leading the market for a long time, and with the technology curve only steepening, I think it will continue over the long term. The Invesco QQQ Trust (NASDAQ: QQQ), which tracks the tech-heavy Nasdaq-100 index, meanwhile, is one of the best ways to play the sector without investing in a sector-specific fund.
Approximately 64% of the QQQ’s portfolio was in tech stocks at the end of October, and when including Amazon and Tesla, which are categorized in other sectors, it’s over 70%. Meanwhile, the fund has been a tremendous performer over the last 10 years, with an average annual return of 20.3% as of the end of October.
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Geoffrey Seiler has positions in Advanced Micro Devices, Alphabet, Amazon, Broadcom, Invesco QQQ Trust, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Bloom Energy, Broadcom, Micron Technology, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends Space Exploration Technologies. The Motley Fool has a disclosure policy.
