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Surging Bond Yields Hit Tech Stocks Especially Hard
Global equity markets continue to struggle as investors react to more waves of unwelcome news, while surging bond yields have sent tech stocks reeling. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all sank yesterday. The markets rebounded this morning, however, after Treasury yields eased from their previous highs.
“Higher bond yields make future profits less valuable, and many fast-growing tech companies are valued on the basis that they will pump out a chunk of their profits many years in the future. The tech-heavy Nasdaq is in a bear market, defined as a 20% or greater drop, and is now trading at a level it hasn’t seen since late 2020,” write Jacob Sonenshine and Jack Denton of Barron’s.
It seems unfair, since the technology sector is clearly doing its fair share of work to keep the economy going. But all of the markets are connected, and it would be naïve to expect tech to escape unscathed.
That said, the fundamentals of our industry remain sound. After the market hits bottom, I expect that we will play a key role in its recovery. Hopefully, the cycle of loss and recovery will be relatively brief. Despite the gloom, I am confident that tech will remain a powerful force for good in our interconnected global economy.
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