Tech Stocks Falter as Treasury Yields Hit 4.79%, Nasdaq Falls 1%

[Mexico City = Shim Young-jae, Correspondent] The yield on the U.S. 10-year Treasury bond rose to 4.79%, marking the highest level since January of last year. Concerns over rising inflation pressures due to the surge in international oil prices following the U.S.-Iran conflict have pushed yields higher. The increase in long-term rates has led to a decline in the U.S. stock market, particularly among tech stocks.

According to Yahoo Finance and Bloomberg, on the 1st (local time), the yield on the U.S. 10-year Treasury bond rose to 4.79% during trading hours.

10-Year Yield at 4.792%... Highest Since January 2025

On this day, Yahoo Finance reported that the U.S. stock market opened lower on the first trading day of September. The rise in long-term Treasury yields and growing expectations for additional rate hikes this year influenced the market.

TradingView reported that the yield on the U.S. 10-year Treasury bond reached 4.792%. This is an increase of 0.038 percentage points compared to the previous day's closing yield of 4.754%.

During the trading session, the yield briefly dipped to around 4.755% before quickly rebounding. It then expanded its gains, rising to the 4.79% level around noon.

Yahoo Finance noted that the yield on the 10-year Treasury bond has reached its highest level since January of last year.

The market is also reflecting concerns about inflation due to rising international oil prices.

According to Yahoo Finance, after U.S. President Donald Trump stated that he would strongly strike Iran, international oil prices surged. Concerns have grown that the conflict between the U.S. and Iran could drive energy prices higher and stimulate inflation again. The October contract for West Texas Intermediate (WTI) crude oil rose by 5.06% to $90.10 per barrel.

Bloomberg also cited concerns about inflation and fiscal deficits as reasons for the sharp rise in long-term Treasury yields. It explained that the simultaneous demand for funding from governments issuing bonds and companies expanding AI investments is putting pressure on the bond market.

Rising Rates Weigh on Tech Stocks... Nasdaq Down 1%

The rise in long-term rates has also acted as a burden on the stock market.

According to Yahoo Finance, the S&P 500 index fell by 0.68%, the Dow Jones Industrial Average by 0.79%, the Nasdaq index by 1.01%, and the Russell 2000 index by 1.10%. The volatility index (VIX) rose by 6.98% to 15.96.

Tech stocks led the decline. Semiconductor stocks drove the weakness in tech, and Nvidia also fell. In contrast, energy stocks continued their upward trend from the previous trading day due to the surge in international oil prices. Shares of Chevron and ExxonMobil also rose.

Bloomberg explained that when Treasury yields rise, the present value of companies' future profits decreases, which generally puts pressure on stock valuations. This effect is particularly pronounced for tech stocks, which are assigned high values for future profits.

The competition for investor funds between bonds and stocks is also a variable. When Treasury yields, considered relatively safe assets, rise, stocks, which are riskier assets, must offer higher expected returns to attract investors.

Corporate borrowing costs are also linked to Treasury yields. Bloomberg explained that when Treasury yields rise, the cost of capital for companies increases, which can burden capital investment and profits.

"The Reason Stocks Hold Up Despite Rising Rates is Strong Corporate Earnings"

However, Bloomberg pointed out that despite the recent rise in long-term rates, the global stock market has shown relatively robust performance compared to the past, attributing this to strong corporate earnings and economic growth.

The MSCI All Country World Index (MSCI ACWI) remains near its all-time high, even as long-term Treasury yields have risen to their highest levels in nearly 20 years.

According to Bloomberg Intelligence, S&P 500 companies' earnings in the second quarter increased by 33% compared to the same period last year. Bloomberg reported that this is one of the strongest earnings records.

If the causes of rising rates reflect not only inflation or fiscal instability but also strong economic growth expectations, stocks and rates could rise together.

This year, the U.S. real GDP is projected to grow by 2.1%, matching last year's growth rate. Annual corporate earnings are expected to increase by 27%.

Bloomberg explained that the expansion of the AI industry supports much of this optimism.

The gradual pace of rising rates is also cited as a factor that has limited shocks to the stock market so far.

Georgios Leontaris, Chief Investment Officer (CIO) for HSBC Global Private Banking in Europe, the Middle East, and Africa, stated, "If rates rise suddenly and chaotically, the stock market will eventually react."

Bloomberg reported that the ICE BofA MOVE index, which indicates volatility in the U.S. bond market, has remained at a low level compared to the last five years.

The situation was different in 2022. At that time, central banks raised rates in response to high inflation, causing the yield on the U.S. 10-year Treasury bond to more than double over the year. During the same period, the market capitalization of MSCI ACWI constituent companies decreased by about $18 trillion.

Currently, the benchmark rate is already high compared to the period immediately after the COVID-19 pandemic. The market is also reflecting the possibility of further rate hikes.

Kevin Warsh, a member of the Federal Reserve (Fed), warned last month that inflation in the U.S. is not significantly slowing down, suggesting that the Fed may "have something to do."

The relative attractiveness of stocks is also a variable.

According to Bloomberg, the equity risk premium, which is the difference between the earnings yield of the S&P 500 and the yield on the U.S. 10-year Treasury bond, has remained in negative territory since 2024.

However, a separate equity risk premium model from Société Générale still shows that stocks remain more attractive than bonds.

Manish Kabra, Chief U.S. Equity Strategist at Société Générale, analyzed that based on this model, the stock market can absorb an additional rise of 0.50 to 0.60 percentage points in Treasury yields. He explained that rates would need to rise by 2 percentage points to signal the end of the market cycle.

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