Tech Stocks Slide as Treasury Yields Hit Yearly Highs

The Nasdaq Composite dropped 1.7% on Friday, marking its largest decline in over a month. Tech stocks faced significant selling pressure, with the S&P 500 and Dow Jones Industrial Average declining 1.2% and 0.8%, respectively. Treasury yields surged, with the 10-year yield climbing 14.2 basis points to 4.601%, the highest since November 2022. The 2-year yield also rose, increasing 8.7 basis points to 4.079%.

Investors responded to fresh inflation data, adjusting expectations for Federal Reserve policy. José González, a fixed-income strategist at Global Markets Advisory, described the yield increase as "bear-steepening," where long-term yields rise faster than short-term ones. “This reflects renewed inflation concerns,” González noted, citing hotter-than-expected price data from major economies.

Profit-taking in the tech sector coincided with falling equity prices. Nvidia, a leader in artificial intelligence, fell 3.5%. Apple, Tesla, and Alphabet each dropped over 2%. The Nasdaq had previously recorded seven consecutive weekly gains, complicating the selloff narrative. However, the index remained up 34% year-to-date by Friday’s close, outperforming other benchmarks.

The yield surge impacts equities through various channels. Higher yields make fixed-income securities more attractive compared to stocks. They also increase borrowing costs, especially for growth-oriented sectors like technology that rely on cheap financing. Bloomberg data revealed a $3.8 billion outflow from U.S. equity-focused ETFs last week, indicating broader investor caution.

This shift signals a repricing rather than panic. "We’re seeing rotation rather than capitulation," said Sarah Li, head of equity research at Tokyo Asset Partners. Li emphasized that institutional portfolios remain overweight in tech despite some position trimming. She highlighted the upcoming U.S. CPI data, due October 12, as a potential market catalyst.

The corporate earnings season begins this week with reports from JPMorgan Chase and PepsiCo, adding another layer of uncertainty. Analysts forecast a 0.5% year-on-year decline in S&P 500 earnings for Q3, according to FactSet. However, tech companies are expected to post modest growth, contrasting with industrials and energy sectors facing steeper cost inflation pressures.

The broader question concerns sustainability. Can equities maintain gains if yields stay high? The Bank of Japan’s recent shift in yield-curve control policy highlights global pressures. While Japanese 10-year yields remain below 1%, spillover effects are evident in dollar-yen volatility. U.S.-Japan yield differentials widened last week, pushing the yen to ¥148.56 per dollar on Friday, a level not seen since late 2022.

Friday’s market activity illustrates the interdependence between equity and bond markets. Rising yields may temporarily curb risk appetite, yet they also reaffirm economic resilience, assuming inflation remains manageable. Next week’s macro data, including U.S. retail sales and China’s trade figures, could prompt further adjustments.

For now, investors are cautious but not reactive. The Federal Reserve’s next meeting, concluding November 1, may clarify the trajectory. Until then, both bulls and bears are closely monitoring fixed-income markets for signals.