Rising rates are eroding the value of even the most high-flying tech stocks. Nvidia, the chip maker of the AI revolution, has seen its valuation multiple drop significantly since January. The S&P 500 has also seen its multiple slide even as the broad index hit new highs, with Wall Street blaming rising rates. The 10-year Treasury yield touched a new 24-year high and posted its steepest quarterly increase since 1994.
"The rise in interest rates has already had a huge impact on the stock market," said Bob Doll, chief investment officer at Crossmark Global Investments. "P/E ratios have fallen three turns." Since the S&P 500's previous closing high on Aug. 13, 18 of the 25 industry groups have dropped, and an equal-weighted version of the benchmark is down 5%.
The index's latest rally relies on software, technology, and semiconductors, all bound by AI enthusiasm. The S&P 500 now trades at roughly 19.3 times projected earnings, down from 22.2 times at the start of the year. "If I told you at the beginning of the year, 'We're going 100 basis points higher on the 10-year,' there's no way you would have landed on the outcome that we've had," said Alex Chaloff, chief investment officer at Bernstein Private Wealth Management. "But the reality is earnings have been fabulous."
Source: Wall Street Journal Markets · Summarized by HeadlinesBriefing