Well, the growth stocks and the technology market (Nasdaq) will be affected the most because they have a strong inverse relationship with interest rates. Let's take a look at the chart below.
We can see from the chart that when the 10-year treasury yield rises, the Nasdaq index will fall and vice versa. This shows that the growth stocks and the technology market are very sensitive to the treasury yield movements. There is no doubt that interest rates will keep rising until inflation is under control and this will cause the treasury yields to rise as well. When the treasury yields keep rising, the Nasdaq index won't do well.
3 comments:
I noticed that the IT hardware & software was negative inflation, and with the nasdaq dropping inverse with rate yield increase, would that mean technology sector going to be recession and control the budget and employment headcount in order to maintain the own stock market price?
Technology sector going downturn while commodities sector going upturn for years, a reverse cycle change?
Deflation for IT hardware and software?
I do not concur with the deflation statement because of the current semiconductor shortage. For your information, TSMC is jacking up its semiconductor price again.
Although the software doesn't need chips, it still needs programmers, and labour costs are rising now.
The growth stocks and technology sector are always sensitive to interest rate movements and they don't tend to perform well in a rate-rising environment. This is because their valuations are projected based on future growth which must be discounted to the net present values(NPV). The NPV will get smaller when the discount rate (risk-free rate) is getting higher. Therefore, analysts will usually recommend investors to avoid growth stock and invest in value stocks selectively.
The commodities sector always does well during high inflation and we can see the base metals and oil spiking now. However, the commodities and technology sectors will also enter a recessionary phase when the economy suffers a recession.
http://sg-stock.blogspot.com/2021/01/the-us-fed-is-lying-again.html
Please read this article on the effects of discount rates.
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