Technology stocks have exhibited weakness as the technology-heavy NASDAQ Composite is down nearly 4% over the past week and opened lower this morning. There are many causes to the sell off, but the primary driver is concern around rising bond yields.
Bond yields fell to record lows after the pandemic started and this was a key driver in propping up technology stocks, which also benefited from stay-at-home measures that pushed consumers to online streaming, shopping, and an overall need to upgrade their technology footprint. Generally, technology stocks are impacted by bond yields because they tend to have higher stock price valuations that are calculated based on projected future earnings. Higher yields create higher discount rates for valuing those future earnings streams and thus the stocks become less valuable. Technology stock valuations have been lofty in this low yield environment, hitting levels not seen since the dotcom bubble.
For more insights, download our full commentary.
Commentaries are published by Cetera Investment Management LLC, an SEC registered adviser owned by Cetera Financial Group. Cetera Investment Management provides market perspectives, portfolio guidance, model management, and other investment advice to its affiliated broker-dealers, dually registered broker-dealers and registered investment advisers.
Want more insights like this, sent straight to your inbox?
Subscribe to email updates from Cetera and be well informed about what’s happening within the market and the financial services industry overall.