In Your Money This Week, stocks are down a bit, bonds are up, and earnings season is giving us a better look at what investors are rewarding—and punishing.
The early earnings story is mixed. Some companies are still putting up strong numbers, but the market is getting less patient with heavy AI spending that isn’t producing enough return yet. That ties directly into the portfolio question we discussed last week: know how much AI exposure you already have, diversify around it, and be especially careful with companies that depend heavily on borrowing to fund the build-out.
Check out last week’s episode for more on how to invest in the age of AI. Plus:
- This Vanguard article Navigating the AI hype cycle: A case for active, which shares that the next phase of AI investing may be less about owning the companies spending the most on infrastructure and more about identifying which businesses can turn AI into durable revenue, higher margins, and strong returns on capital. As the cycle matures, leadership could broaden beyond semiconductors and data centers to include efficient hyperscalers, companies using AI to improve their businesses, and entirely new business models built on top of the technology.
- How an AI Investment Slowdown May Affect Tech Subsectors by Morningstar which “examines how a potential slowdown in AI-related revenue growth, moderating capital expenditure, or rising data center vacancy rates could affect credit quality across the broader AI ecosystem.”
- Top Strategists Share 5 Ways Investors Can Hedge the AI Trade by Morningstar shares that sector diversification, quality companies, dividend payers, bonds, and alternatives can diversify against AI risk.
We also spend time on the residential real estate struggles, which we think isn’t getting enough attention. Mortgage rates are back above 7%, affordability is poor, pending sales and purchase applications are falling, builders are cutting back, and more markets are seeing home prices decline. Higher borrowing costs, expensive building materials and labor shortages are also making it harder and more expensive to add new supply.
For buyers and sellers, the key is to stop thinking about housing as one national market. Tight-inventory markets in parts of the Northeast and Midwest are still seeing price strength, while higher-inventory markets in parts of Texas, Florida and the Mountain West are much softer. Sellers in competitive markets need to recognize that they may be competing with builders offering price cuts and incentives. Buyers should run the numbers on renting versus buying—including mortgage rates, taxes, insurance, maintenance and how long they expect to stay—rather than assuming buying is always the better financial decision. Buying can still make sense if you can afford it, plan to stay for a long time and value the stability of owning a home.
We wrap up referencing three planning articles you should check out about Medicare open enrollment, charitable giving, and what the midterms could mean for investors.
- Buyer Beware: New Medicare Plans Have Fewer Benefits, Higher Costs by The Wall Street Journal highlights that people on Medicare should actively re-shop their coverage for 2027 rather than automatically renewing, because provider networks, drug coverage, deductibles, copays, and extra benefits may all have changed materially. Verify that your doctors and prescriptions are covered, compare total out-of-pocket costs rather than premiums alone, and use Medicare.gov to make sure you are seeing all available options.
- Donor-Advised Funds and Qualified Charitable Distributions: Two Strategies to Consider Before Year-End by Savant Wealth Management explains how two very different charitable giving strategies work and when they work best.
- Investing in a Midterm Election Year by BNY Investments reminds us that midterm election years have historically brought more market volatility before Election Day, followed by stronger performance once political uncertainty clears; since 1942, the S&P 500 has averaged a 14.8% gain in the year after midterm elections. Different election outcomes could affect specific policy areas and sectors, but major legislative changes may still be limited by divided government or presidential veto power. For investors, the main message is not to let election results drive long-term portfolio decisions and instead stay diversified and focused on the broader economic and earnings backdrop.
We get into all of this in this week’s video, now available at YouTube, Spotify, Apple, and wherever you get your podcasts.
Don’t forget to join us next week for our first book club discussion – The Everywhere Millionaire.
