By Lewis Krauskopf and Saqib Iqbal Ahmed NEW YORK - Surging bond yields are rattling U.S. stocks, and some investors worry the richly valued shares of giant technology and growth companiesSaltWire's Atlantic regional weather forecast for September 29, 2023 | SaltWireNEW YORK - 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%.Higher yields on Treasuries - which are sensitive to rate expectations and seen as risk free - offer more investment competition to stocks while raising the cost of borrowing for corporations and households.
“Because are more highly valued, that just means that they are going to be more sensitive to changes in real interest rates,” said Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management Co.