Rapid rise in bond yields challenges investor confidence in big tech companies

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The rapid rise in government bond yields has hurt the share of technology advocates, who have boosted major indices over the years, and investor confidence in some of the most popular deals in the stock market. is testing.

software giant microsoft stock Ltd.

, Google’s parent Alphabet Inc...

and chip maker Nvidia Ltd.

It is down more than 4.5% so far this week, dragging down major indexes and equity funds, which have a significant impact on companies with higher market cap. Apple Inc., Amazon.com Inc.with..

Facebook Inc...

and Netflix Inc...

Seven companies lost about $315 billion in market value on Tuesday, according to Dow Jones market data. This is the biggest drop since October last year. The S&P 500 fell 3.8% in September and is on track for its biggest monthly decline of the year.

Long-term government bond yields have jumped at their fastest pace in months with the recent reversal, pushing the benchmark 10-year US Treasury bond yield to over 1.5%. As bond prices fall and the spread from mortgages to car loans, yields rise. With 10-year yields as high as 3 months, the appeal of some tech companies is dim.

Because of the low returns, many investors are willing to pay more for shares of large technology companies that are expected to generate large profits in the future. Yields rise when investors feel better about the economy, so their progress boosts the share of companies that make more money and increases shareholder returns during periods of global growth. I have. So-called circulating stocks are also cheap.

Bank of America withdrew $1.2 billion from technology mutual funds and exchange-traded funds in the week ended September 22, according to data provider EPFR Global Show. The outflow of nearly $29 billion from US equity funds that week was the largest in more than three-and-a-half years, halting the continued spread of inflows.

Similar movements in yields and tech stocks in recent months have proved temporary, but the recent volatility has left many investors uneasy with the outlook for rising interest rates. Recent bets on better economic data and rising inflation will come after the Federal Reserve Board of Governance indicated it would begin cutting bond purchases in November and raising interest rates in 2022. Interest rates say economic changes caused by the coronavirus and supply chain turmoil could further exacerbate inflation, some analysts say.

The recent surge has placed bets that they will remain low and that the market cap of the tech leaders will continue to rise. Investors preferred financially sensitive stocks as bond yields soared earlier this year, and then poured tens of billions of dollars into tech funds this summer as so-called reopening trading collapsed. Analysts said those who have recently delved into tech stocks are now forced to reevaluate their bets.

Sean Snyder, head of investment strategy at Citi US Consumer Wealth Management, said: “For tech stocks, he said, “valuations will remain high and risk averse if yields outpace these sharp increases.” He recommends that customers prefer cheaper sectors like healthcare, but still expects tech companies to continue to grow.

Many investors were preparing to pull back this fall after months of stock booms. According to Dow Jones market data, the S&P 500 hasn’t traded below 5% from record highs in nearly a year. This is the longest in a row since February 2018.

The recent slump in the market raises concerns about the imminent collapse of Chinese real estate developer China Evergrande Group and the impending deadline for the US government to reach an agreement to raise federal lending or loan caps. This also includes investors.

Rising stocks of Amazon.com and other Internet companies have propelled major indices over the past few years, but investors can see that a decline in these popular stocks could have a significant impact on the market as well. I warn you there is sex.

Photo:
Photo: Tom Williams / Zuma Press

Rapid changes, such as those seen recently, are a cause for concern for market watchers as the downward momentum could nourish itself and make selling more severe. Many technology stocks have benefited from the explosive benefits of trading options, which allow holders to buy and sell assets at specific prices in the future. Market makers who sell options to investors often hedge their positions by buying stocks that can trigger a rise in stock prices.

However, when stock prices decline, the same trend can lead to strong selling. Increased volatility and outflows from equity funds can also trigger selling by trend-following investors. Traders often use borrowed funds to make money. If stocks and bonds are still linked, clearing those transactions may encourage others to exit their positions.

Such systematic signs of selling are worrying for investors because they can strengthen companies as weak.

Leslie Thompson, managing member of Spectrum Management Group, said: “She continues to support major tech companies such as Microsoft and Alphabet, adding that despite the recent rise in bond yields, there are some attractive options for holding shares.

A significant drop in these stocks can have a significant impact on the stock market, as trillions of dollars worth of companies such as Microsoft, Alphabet, Apple and Amazon make up a significant portion of the major indexes. Energy stocks are up 3.9% this week and financial stocks are almost flat, while the S&P 500 is down 2.3%.

Many investors are confident that strong returns will support equities, but more sudden interest rate fluctuations could fuel continued volatility, investors said. This is especially the case with the delta mutant of the coronavirus, which has obscured recent economic data.

Snyder of Citi US Consumer Wealth Management said:

write to Amrit Ramkumar at [email protected]

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Rising bond yields challenge investor confidence in big tech companies

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