Why do Treasury yields affect tech stocks?

Higher rates means future profits are worth less today, and that’s hurting fast-growing technology stocks. Fast-growing technology stocks have been slammed because of rising bond yields amid expectations for stronger economic growth. Less money going into bonds is expected to lower their prices and raise their yields.

Why Higher interest rates are bad for tech stocks?

In order to peg what the value of a stock is today based on those future earnings, an investor needs to discount the value of those future earnings. Higher interest rates translate into higher discount rates, which reduce the value of future cash flows and reduce the value of the stock today.

What stocks make up the tech sector?

The five largest stocks make up over 20\% of the S&P 500’s market cap, and they are all technology-related: Meta Platforms FB, -0.24\% (Facebook’s parent), Alphabet GOOG, -1.33\% (owner of Google), Microsoft MSFT, -1.13\% , Apple AAPL, -1.22\% and Amazon AMZN, +0.33\% .

How do yields affect stocks?

How do rising bond yields affect stocks? In theory, a rising bond yield should be negative for equity prices because higher yields would make equity investments unattractive (more on this later). Bond yields reflect the growth and inflation of an economy. When the growth is strong, yields would rise.

Why is inflation bad for stocks?

Stocks also trade largely on corporate profits, and higher rates tend to cut into profits because they increase the cost of money. If the underlying reason for higher rates is inflation, rising prices and wages also increase a company’s costs, which further erodes profits. All of which is bad for stock prices.

What does inflation mean for the stock market?

Value stocks perform better in high inflation periods and growth stocks perform better during low inflation. When inflation is on the upswing, income-oriented or high-dividend-paying stock prices generally decline. Stocks overall do seem to be more volatile during highly inflationary periods.

What is the tech sector?

The technology sector is comprised of businesses that sell goods and services in electronics, software, computers, artificial intelligence, and other industries related to information technology (IT).

What is Treasury yields?

Treasury yield is the return on investment, expressed as a percentage, on the U.S. government’s debt obligations. Treasury yields also tell us how investors feel about the economy. The higher the yields on long-term U.S. Treasuries, the more confidence investors have in the economic outlook.