We're looking to scale back our semiconductor exposure in the Charitable Trust given this week's more aggressive tightening signals from the Federal Reserve . Reducing our position near-term in Nvidia (NVDA) — which we still love long term — is a top priority given its weighting in the portfolio. We would have done so Friday, if not for our Club trading restrictions, which are detailed at the end of the story. If clear, we may trim some as soon as Monday. Lightening up on Nvidia, when we're allowed to trade it, would be another step in the Club's broader pivot for our own portfolio , as we respond the reality that the Fed may move much faster with interest rate hikes and balance sheet run-offs than previously thought. Portfolio pivot High price-to-earnings multiple tech stocks historically get crushed in that type Fed environment as evidenced by what happened in 2018 when central bankers starting talk tough. So with history as a guide, we want to use money from selling high-multiple chip stocks to expand our presence in reasonably stocks with more reasonable valuations that return capital to shareholders through dividends and buybacks. Semiconductor stocks, overall, have lagged the market so far this year. The VanEck Semiconductor ETF , which trades under the ticker symbol SMH, has dropped roughly 20% year to date compared with the S & P 500 's decline of 5.5% and the Nasdaq's slide of 12% so far in 2022. We think there's still further room to fall for stocks in the chip cohort, especially those elevated P/E ratios, making them vulnerable to selling pressure when bond yields increased. That's because investors are less willing to pay up for expensively valued stocks in a rising rate environment. We're already seen that start to accelerate this week. What changed? Our attitude on technology stocks changed Tuesday, when two Fed officials who previously were seen as dovish made comments on inflation that signaled a more hawkish U.S. central bank. Even if we like a company's long-term prospects, we don't want to fight the Fed. We've been adjusting our portfolio accordingly by lightening up on technology. Semiconductors, in particular, we sold 200 shares of Marvell Technology (MRVL) on Wednesday morning. Also this week we've trimmed our Microsoft (MSFT) and Amazon (AMZN) holdings, and completely exited Mastercard (MA) on the fintech side. What's next? The current moment reminds us a lot of October 2018, when the Fed indicated its intention to raise interest rates in lockstep fashion, triggering unease on Wall Street. Chip stocks were among the hardest-hit parts of the market back then. Jim Cramer elaborated during the Club's "Morning Meeting" on Friday. "They do find a bottom. If you go back to the 2018 analog I was talking about, where the Fed decided to tighten, you had an incredible decline in October and then a fantastic bounce when they were done [with] their devious work, but we expect that has to happen again, and the pain may be too great for you," he offered. Why Nvidia? Let's zero in on Nvidia for a moment to illustrate our thinking. While one of Cramer's longtime favorites and a winning position for the Trust with an average gain of around 400%, Nvidia is no stranger to big swings. It's a relatively high beta stock, meaning it's more volatile than the overall market. As recently as March 29, Nvidia traded at nearly $290 per share. It's around $234 on Friday, down nearly 13% in the past five sessions alone. Cramer said a "bad trader" may think that because they didn't get a chance to sell around that near-term peak of roughly $290, they may want to just keep holding onto the stock and hope it returns to those levels soon. Hoping is not a strategy. A "second bad trader" may think Nvidia will bounce in the ballpark of $210 per share, which is generally where it's bottomed in the past six weeks, Cramer said. That's also a wrong assumption to make. "What we are saying is, the stock has got too high of a multiple for this market. We own too much Nvidia," Cramer said on the "Morning Meeting" video livestream. The Club has a huge unrealized gain in Nvidia, and it's tempting to think that it may be too late to trim. But Cramer cautioned heavily against that line of thinking. "If we were not restricted, we would've sold some at the open," Cramer said Friday, adding that on Monday, the Club plans to trim some of its Nvidia position if we're not restricted. (Jim Cramer's Charitable Trust is long NVDA, MSFT, MRVL and AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Nvidia CEO Jensen Huang wearing his usual leather jacket.
