The next milestone in technology stocks’ current rebound would be for the shares to reach record levels, but they will need new fuel to get there.
The other key to the recent bounce is that the yield on 10-year Treasury debt has fallen to just over 4.1% from the multiyear peak of just over 4.3% it hit this summer. Lower bond yields make future profits more valuable in current terms, and investors buy the tech stocks for the earnings they are expected to bring in years from now.
That is a signal that valuations—the amount investors are willing to pay for each dollar of future earnings—are high. The Nasdaq 100 is trading at about 24.6 times the aggregate earnings its component companies are expected to bring in over the next 12 months, compared with just over 20 times in October 2022, the last time the 10-year yield was above 4%. A steeper decline in the 10-year yield likely would be needed to push valuations much higher.
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