Only 1 Vanguard sector ETF is down more than 5% from its 52-week high. Here’s what that means for investors in value, dividend and growth stocks.

What started as an artificial intelligence (AI) and stock-driven boom turned into a widespread wave of higher stock prices. Growth-oriented sectors such as technology and communications are no longer the only winners. Of the 11 exchange-traded funds (ETFs) in the Vanguard sector, 10 are down less than 5% from their 52-week highs. Even heavy and safe sectors generate monster gains.

Here’s why a broader rally is better than a rally led by a few sectors, and how to navigate a bull market when valuations get more expensive.

Image source: Getty Images.

Dissecting the market rally

Vanguard offers low-cost ETFs for all 11 stock market sectors, with expense ratios between 0.1% and 0.13%, or annual fees of $1 to $1.30 for every $1,000 invested.

Sector ETFs can be a great way to achieve diversification, especially when you can’t decide between several investment opportunities. For example, utilities tend to have regional operations and range from providers of electricity to gas, water and more. The Vanguard Utility ETF (VPU -0.03%) provides an easy way to protect against natural disasters and smooth risks across industries and geographies.

As you can see in the chart, every sector except energy is down less than 5% from its 52-week high, S&P 500 is down less than 1% from its peak and six sectors are at 52-week highs.

VCR data by YCharts.

Additionally, all 11 sectors have gained year to date, with no individual sector outperforming the S&P 500 by a wide margin. Technology, utilities and communications slightly beat the S&P 500, but only by less than 2 percentage points.

VCR data by YCharts.

The technology sector makes up more than 31% of the S&P 500 and has been a key driver of the index in recent years, given its exposure to the fast-growing software, hardware and semiconductor industries. Seeing traditionally low-growth sectors like utilities, healthcare and consumer staples post impressive gains (in addition to the tech sector) is a great sign that stock market growth is getting healthier, so a sell-off in a few sectors it will not necessarily derail the bull market.

Everyone is a winner

The features that can attract an investor to a high-octane growth opportunity such as Nvidia differs from a company like Coca cola. Nvidia is an expensive stock valued primarily on future earnings potential and a sustained boom in demand for its graphics processing units, rather than what it’s doing today. In contrast, Coca-Cola has paid and increased its dividend for 62 consecutive years and is valued based on its track record, global reach and diversified portfolio of beverage brands, which includes soda, juices, energy drinks, coffee , tea, water and sparkling water. .

Despite their differences, Nvidia and Coca-Cola are both hovering around all-time highs. So are I UnitedHealth — one of the most valuable health insurance providers — JPMorgan Chase, Lockheed Martin, Procter & Gamble, Appleand Meta platformsto name a few. In conclusion, investors are optimistic about the economy in general, not just a particular theme or investment opportunity.

Navigating a bull market

Markets like this are great for investors with established positions in top companies. But finding bargains in an expensive market can be difficult, especially for first-time investors or those looking to put new capital into the market. After all, no one wants to lose money investing in the market at its peak only to see it sell off.

No one knows when there will be another recession, market correction or bear market — but they will inevitably happen. Volatility is simply the price of admission to unlocking gains in the stock market. So instead of hoping to avoid a sell-off, a better approach is to invest in companies or ETFs that you feel comfortable owning during periods of volatility. Understanding a company’s investment thesis and what will likely drive the stock’s long-term performance can help filter out the noise during a selloff.

It is also essential to align your holdings with your risk tolerance. If you’re investing for a retirement that’s decades away, then it doesn’t really matter what the stock market does in the next few quarters or years. But if you’re a risk-averse investor looking to supplement retirement income and preserve capital, investing in safe companies that can perform well even during a major recession might be a better strategy.