VOO Is Down 6% From Its High. Over the Past Year It’s Up 10%. Which Number Should Investors Focus On?
The Vanguard S&P 500 ETF (NYSEMKT: VOO) is about 6% below its October peak after a punishing post-election Thursday on Nov. 5. Over the past year, however, it’s still up roughly 10%.
One number is a reflection of short-term volatility and uncertainty. The other suggests a market whose long-term trend line is still pointing up.
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Which one should you pay more attention to?
Image source: Getty Images.
The “down 6%” story: A midterm hangover
Democrats won both the House and Senate on Tuesday by fairly decisive margins. Stocks were positive on Wednesday before the bottom started to fall out on Thursday. The Nasdaq Composite (NASDAQINDEX: ^IXIC), had its worst day since April 2025. The S&P 500 (SNPINDEX: ^GSPC) is the furthest it’s been from its all-time high since the start of the Iran war.
The big trigger was the artificial intelligence (AI) trade. Specifically, investors are worried that the Democratic majorities could slow the progress of AI development and the data center build-outs that have helped to power tech earnings in recent quarters. With the possibility of moratoriums on new data centers and the potential for reducing tax breaks for new constructions, the major players, including Nvidia (NASDAQ: NVDA), saw sharp pullbacks.
Given how far and how fast mega-cap tech stock prices have risen over the past few years, a pullback could be considered normal and healthy. It was likely to happen at the first signs of a slowdown in growth or a peak in the capex spending cycle. The midterm elections may have been the catalyst to ignite concerns about that, although several big companies are so far maintaining their aggressive spending plans into 2027.
But given the sudden swing in U.S. stocks, this could ultimately be more of a knee-jerk reaction than a new long-term trend.
The “up 10%” story: Strong earnings with real risks
The longer-term view starts with corporate earnings. According to FactSet, S&P 500 companies are currently on pace for 30% year-over-year earnings growth in Q3. It would also mark the third consecutive quarter that the growth rate was about 25%.
But we know a lot of that growth is being driven by tech earnings (although other sectors are beginning to show solid growth of their own). As tech revenue and earnings go, so does the S&P 500 earnings growth that has added so much support to this market rally.
That growth is so important, too, because the inflation rate is still well above 3%. Brent crude oil prices are still well above $100 a barrel, and long-term Treasury yields recently hit their highest levels in decades. All of those individually act as headwinds for equity prices. So far, earnings have been more than offsetting those risks, and that’s allowed the S&P 500 to establish new highs. But once that balance starts to weaken, the risk of a deeper and more extended correction grows.
Which number matters more?
I think the 10% longer-term number is more important to pay attention to here.
The obvious reason is that long-term trends and conditions tend to drive stock prices over time. If broad macroeconomic conditions are in good shape, the odds are good that stock prices are going to keep trending higher. There will always be volatility along the way that causes prices to go up and down. But over multiyear periods, this tends to be the case.
What’s happening over the course of just a few trading days is, in most cases, just short-term noise. In this case especially, the surprising results of an election can easily cause a sharp market reaction. I think that’s exactly what we’re seeing here. I’d suspect that over the next several trading days, we’ll see things calm down and the markets start to settle into a range.
I think earnings will be the driver going forward. Long-term investors will probably want to stick with their established plan. But be prepared for more volatility.
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