Wall Street’s artificial intelligence fixation is so strong that it’s overwhelming all risks, including soaring interest rates, as investors continue to plow money into the market’s largest technology stocks and push equity indexes toward record highs. But even with all the euphoria, the risks looming on the horizon are becoming acute, particularly as yields on long-term Treasuries trade near their highest levels in decades.
“With these higher rates, all of us are on edge,” said Ken Mahoney, chief executive officer of Mahoney Asset Management. Just last week, the long bond yield reached 5.69% and the 10-year rate topped 5.3%, something neither has done since 2002. But tech stocks have still managed to hold onto their gains. The largest point contributors to the S&P 500’s and tech-heavy Nasdaq 100’s gains over the last three months are AI giants Microsoft Corp., Nvidia Corp. and Apple Inc.
Investors’ confidence in the durability of this rally largely rests on sky-high expectations for upcoming earnings from the tech giants. Third-quarter earnings per share for the sector are expected to jump more than 65%, according to Bloomberg Intelligence. “It’s hard to even put that in perspective,” said Rob Conzo, chief executive officer of the Wealth Alliance. “It’s historic.”
The market appears to have accepted that rates will stay higher for longer than expected, at least for now. But it’s not clear how long that can last or at what level the pain would start to weigh on tech stocks, given their earnings strength.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing