Surging bond yields are rattling U.S. stocks, and some investors worry the richly valued shares of giant technology and growth companies may be another weak spot.
Their rising stock prices ballooned valuations, however, and some investors say the megacaps could be vulnerable if climbing bond yields keep pressuring stocks. The so-called Magnificent Seven stocks trade at an average price-to-earnings ratio of 31.8 based on earnings estimates for the next 12 months, according to LSEG Datastream. That far surpasses the S&P 500′s ratio of 18.1.
The recent stock selloff has already dented some megacaps, with Apple -- the largest company by market value -- dropping about 13% since late July. High-flier Nvidia fell nearly 12% in September. Apple remains up 32% for the year, with Nvidia up nearly 200%. Shares of tech and growth companies, which often have significant expected profit growth in the years ahead, tend to be hit particularly hard when yields rise because their future projected earnings are discounted more severely.
Still, strategists point out that the rise in implied volatility for tech stocks is no more than for the broader market. That sense of complacency makes tech stocks vulnerable to increased volatility should market declines accelerate from here, said Chris Murphy, Susquehanna Financial Group co-head of derivative strategy.