Why You Shouldn’t Sell Big Tech Stocks Sliding on Earnings

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What's Happening Today

Today might not be the day to look at how your investments are performing if you're heavily invested in the tech sector. Shares of some of the most widely held tech stocks like Google parent Alphabet and Microsoft are falling on the heels of their latest earnings reports.

The tech sector has been struggling as the Federal Reserve continues to hike interest rates to lower inflation. How does the Fed impact tech companies? Higher interest rates take big bites out of future growth for companies. For companies that experience aggressive growth very quickly (like tech companies), higher rates have a bigger, more negative impact.

So this week, expect volatility in markets, especially as tech companies highlight weakness due to the current economic environment.

You might be wondering: Should I sell my tech stocks? And the answer is no. Investing for the long term means looking beyond quarterly earnings, and bad stretches in the market (which could last months or longer). But it does mean that if you are very heavily invested in tech, it might be time to consider approaching your portfolio with more balance. While sectors like utilities and consumer staples might not be as exciting, they could help mitigate some of the risk in your investment portfolio.

Sliding Home Sales

Over in the housing sector, sales of new residential homes dropped yet again as prospective buyers say "no thanks" to higher mortgage rates and house prices. New home sales dropped nearly 11% in September from the month prior and are 17.6% lower than last year.

In a further sign that the real estate market is struggling, mortgage applications dropped 3% from the prior week, while the number of mortgage applications are 42% lower than last year according to the Mortgage Bankers Association. Mortgage rates continue to be the culprit, with the average rate on a 30-year fixed-rate loan sitting higher than 7%, the highest rate since 2001.

While home prices and mortgage rates probably aren't where you'd like them, this does mean that if you're an interested buyer, the power is starting to shift back into your hands. This also makes the possibility of negotiation more likely.

- Kristin

Editors' Picks

US 30-Year Fixed Mortgage Rate Tops 7%, Hits Highest Since 2001 (Bloomberg)

What's the Inflation Rate? It's a Surprisingly Hard Question to Answer (The Wall Street Journal)

Another Yield Curve Inversion Rings Recession Alarm Bells (The New York Times)

How U.S. Treasury Yields Affect the Economy (The Balance)

How To Find and Invest in Low-Volatility Stocks (The Balance)

The Best Investment Strategies (The Balance)

'Everything is Expensive': Seniors Cut Back on Socializing and Meals as Inflation Pinches (CNN Business)

Term of the Day

Utilities Sector

The utilities sector is a category of stocks consisting of private companies that provide basic amenities, including natural gas, electricity, and water. While the majority of the companies included are private, they are part of the public-service landscape. Because of this, the sector is heavily regulated, both on a state and federal level.

Dominion Energy Inc (D), for example, is one of the top 10 constituents or one of the largest stocks within the sector. A few other firms that are part of the Dow Jones utility index are Southern Co (SO), Exelon Corp (EXC), and American Electric Power (AEC).

Off the Charts

Strategic asset allocation is an investing strategy that aligns the makeup of your portfolio after your personal tolerance for risk. There are many models to meet your needs, whether they are more ambitious or more conservative. In practice, strategic asset allocation can help you figure out how much of your money should be invested in broad categories of investments, such as stocks or bonds, along with smaller sub-categories, such as U.S. small-cap and mid-cap stocks.