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Let’s take a look at some of the reasons why tech stocks are down today.
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Reasons for the Drop
Trade Tensions
The overall market has been on a tear lately, but technology stocks have lagged behind. One reason for this is the trade tensions between the united states and China. Tech stocks are particularly vulnerable to these tensions because they do a lot of business in China.
The other reason that tech stocks are down is earnings. While most companies have reported strong earnings, there have been a few misses from big names like Facebook and Apple. This has caused investors to question whether the sector is overvalued.
Despite these headwinds, many analysts still believe that tech stocks are a good long-term investment. They point to the strong fundamentals of the sector and the continued innovation that is happening in the space.
The Strengthening Dollar
The dollar has been on the rise for months now, and it’s finally starting to take its toll on tech stocks.
For years, a weak dollar has helped buoy the tech sector. Multinational companies like Apple (AAPL), Microsoft (MSFT), and Google (GOOGL) generate a large chunk of their revenue in foreign markets, so a strong dollar makes their products more expensive and hurts their bottom line.
But that dynamic has flipped in recent months, as the dollar has surged to its highest level in more than two years. And that’s starting to weigh on tech stocks.
The tech-heavy Nasdaq Composite Index fell 0.6% on Monday and is now down 3% from its all-time high set last week. The iShares NASDAQ Biotechnology ETF (IBB), which tracks the sector, is also down 3% from its 52-week high.
So why is the dollar suddenly so strong? There are a few factors at play.
First, the U.S. economy is improving while many other countries are struggling. That has led investors to flock to the safety of U.S. assets, pushing up the value of the dollar.
Second, the Federal Reserve is widely expected to raise interest rates next month for only the second time in a decade, while other central banks are keeping rates low or even easing monetary policy further. That makes the dollar more attractive to yield-seeking investors.
And finally, Donald Trump’s victory in the U.S presidential election has investors betting that his policies will lead to faster economic growth and inflation, which could prompt the Fed to raise rates at a faster pace than it otherwise would have.
Poor Earnings Reports
One of the main reasons that tech stocks are down today is due to a number of poor earnings reports. Companies like IBM, Microsoft, and Apple all missed their earnings estimates for the quarter. This has caused investors to lose confidence in these companies and has led to a sell-off in their stock prices.
In addition, there are concerns about the overall economy. The trade war with China continues to weigh on businesses, and there are fears that a recession could be on the horizon. This has led to a lot of volatility in the markets, and has made investors more cautious about investing in stocks.
What Does This Mean for Investors?
Short-Term Volatility
While the market may be down today, this doesn’t necessarily mean that it will stay down. In fact, it’s not uncommon for there to be short-term volatility in the markets. This means that there can be big swings in the market on a day-to-day basis.
For example, let’s say that the market is down 3% today. This doesn’t mean that it will be down 3% tomorrow. It could be up 3% tomorrow, or it could be down 6%. The important thing to remember is that short-term volatility is normal, and it shouldn’t cause you to make any rash decisions with your investments.
Long-Term Concerns
There are a few key things that investors are worried about when it comes to the technology sector. Firstly, there is the idea that the overall market is due for a correction. This means that after years of strong growth, stocks in general are going to start to level off or even decline in value. This could have a domino effect and cause tech stocks to fall even further.
Another issue is that many tech stocks are trading at high valuations. This means that they are considered to be overpriced compared to other stocks in the market. When valuations are this high, it leaves little room for error and any negative news can cause a sharp sell-off.
Finally, there are concerns that the Trump administration may clamp down on some of the business practices of tech giants like Amazon (AMZN) and Facebook (FB). For example, President Trump has been critical of Amazon’s impact on brick-and-mortar retailers and has hinted at going after the company’s tax breaks. This type of regulatory risk could spook investors and cause them to sell tech stocks.
How to Play It
While technology stocks have been on a tear lately, today they are taking a bit of a breather. The question is, how should investors play it?
Monitor the Situation
The Nasdaq Composite is down about 1% in early trading, led by declines in big tech stocks. The S&P 500 and dow jones industrial average are both modestly lower as well.
So what’s going on?
There are a few factors driving the selling in the stock market today.
First, there’s increasing concerns about a potential trade war between the United States and China. Yesterday, President Donald Trump said he’s considering imposing tariffs on an additional $100 billion of Chinese goods, on top of the $50 billion worth of tariffs that have already been proposed.
China has threatened to retaliate with tariffs of its own, and this tit-for-tat could escalate quickly into a full-fledged trade war, which would be bad news for the global economy.
Second, there are growing worries that the Federal Reserve may be too aggressive in raising interest rates. Higher rates make it more expensive to borrow money and can slow down economic growth. The Fed is scheduled to meet next week, and investors will be closely watching to see if any clues are given about the central bank’s future plans.
Finally, first-quarter earnings season is winding down, and overall results have been good but not great. With stock prices already at high levels, it’s tough for companies to exceed expectations and drive further gains in the market.
So what should investors do? For now, it makes sense to monitor the situation closely and refrain from making any big moves in your portfolio. If the market sell-off deepens, it could be a good opportunity to buy some quality stocks at attractive prices.
Consider Alternative Investments
Once you’ve chosen your investments, you’ll need to decide how much to put into each one. You can do this by allocating a certain percentage of your investment money to each investment, or by investing a set dollar amount in each one.
For example, if you have $1,000 to invest and you want to allocate 20% to each stock, you would invest $200 in each one. Or, if you want to invest $500 in each stock, you would invest a total of $1,000.
The key is to create a diversified portfolio that meets your goals and fits your risk tolerance.
