Wed. Oct 4th, 2023
Tech stocks have a yield problem

What goes up must eventually come down.

And in the state of the markets right now, Treasury yields are still rising and hot technology stocks are finally falling.

So far this month, the Nasdaq Composite is down about 4.2%. Top tech names like Apple (AAPL) and Nvidia (NVDA) are swinging 10% lower for the month. Microsoft Mighty (MSFT) stock — of all of the company’s AI relationships and love affair with OpenAI — fell 4% in August. Google (GOOG, GOOGL) fell 2.1%.

The only big-name tech stock running higher this month is Amazon (AMZN) (up 4%) — probably because it It reportedly keeps track of whether workers return to the office In reality. More productivity means more profits for Amazon (maybe), and there’s nothing that investors love more.

The downturn in technology coincides with the 10-year Treasury yield rising from around 3.95% in late July to above 4.1% today. Returns in early April were about 3.3%, for perspective’s sake.

Blame a downgrade in the US credit rating to Fitch before a flood of US bond issuances or deinflation sends liquidity to higher risk areas in the markets. Whatever the case, high returns could continue for the time being, and that spells bad news for tech investors.

Treasury yields may not have peaked yet.

Treasury yields may not have peaked yet. Favorite

In fact, there are chatterboxes on the street who may have more room to run.

“Despite the growing odds that the Fed will pause at the September meeting, yields remain strong. Without taking any factors into account and just looking at the chart, yields don’t look like a top to us and look poised to retest the highs from 2022. It posted 10 and 30 year higher highs and higher lows since April, and we’ll need to see at least a lower low before signaling a top may be in place,” RenMac’s strategy team wrote in a new note to a client.

The old rule is that tech stocks don’t like high-yielding territory. Higher borrowing costs, more attractive returns on cash, stronger discounts, and future growth are all part of the challenge for tech chiefs when interest rates rise.

“Our view is that these higher rates, where we remain above 4%, will serve to cap further valuation expansion. This has been a major driver of stock returns this year,” astute market watcher Keith Lerner told Truist.

Lerner added, “Stocks are already trading at the highest valuation level in the last 20 years, far from getting through the pandemic, which coincided with the fed funds rate at zero versus above 5% today and the 10-year yield is less than 1%.”

Treat tech enthusiasts with a grain of salt — at least until their returns are below 4%.

Brian Suzy He is the Executive Editor of Yahoo Finance. Follow Suzy on Twitter @employee and on linkedin. Deal tips, mergers, activist positions, or anything else? Email brian.sozzi@yahoofinance.com.

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