What Tech and Housing Stocks Have in Common—and Why They’re Both Risky

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The two sectors are both ultrasensitive to bond yields, which is why they've been sliding---and why they could keep losing.

Tech and home-building stocks have something in common, believe it or not. They’re both ultrasensitive to bond yields, which is why they’ve been sliding—and why they could keep losing.

In tech, many companies are valued on the basis that a bulk of their profits will arrive years from now—and higher long-dated bond yields make future profits less valuable. The Fed could well have a hand in what happens in the short term. If the central bank signals at its annual Jackson Hole summit this week that it plans to keep rates higher for longer, the selling could keep going—and the yield would keep rising.

To go along with the poor outlook, the stock is a risky bet because it’s expensive. Shares trade at 20.8 times analysts’ forward EPS estimates, almost 12% above the S&P 500’s aggregate price/earnings multiple, according to FactSet. The stock, for reference, often trades in line with the market when home builders are out of favor. More declines are in store until the economic outlook improves.

 

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