How yields are choking the Nasdaq

NQ100

Key zone: 30,500 - 31,000

Buy: 31,200 (on a pullback following a retest of 31,000); target 32,500; StopLoss 30,700

Sell: 30,000 (on strong negative fundamentals); target 28,500; StopLoss 30,500

Treasuries are back above 5%, oil is once again putting pressure on inflation, and the strong U.S. economy is leaving technology stocks with increasingly less room for high multiples.

The main threat to the Nasdaq right now is not in corporate earnings reports but in the bond market. The 10-year Treasury yield has returned above 5%, while the strongest growth in U.S. business activity since 2021 is simultaneously being accompanied by accelerating costs. For expensive growth stocks, this combination is becoming increasingly toxic.

A reminder:

On September 24, the 10-year Treasury yield rose to approximately 5.1%, returning to levels the market had not seen since 2007. A day earlier, a strong PMI had already triggered a sharp rise in yields and pressure on the technology sector. The preliminary S&P Global US Composite PMI rose from 56.0 to 58.4 in September — the highest level since July 2021. Business activity is accelerating for the fourth consecutive month, while employment grew at its fastest pace in more than four years.

For the economy, this is a positive signal. For the stock market — not necessarily anymore.

At the same time, the pace of growth in companies’ costs approached a four-year high. S&P Global links the acceleration, among other things, to rising energy prices and production capacity constraints. As a result, the U.S. is getting a dangerous combination for the Fed: strong demand, a resilient labor market, capacity shortages, and rising costs.

That is precisely why good economic data can now put pressure on the Nasdaq.

The stronger the economy, the less justification there is for rapid policy easing. The higher the inflationary costs, the greater the risk that rates will remain elevated or that there will be further tightening.

On September 16, the Fed unanimously raised the federal funds target range by 25 basis points — the market is now assessing the probability of the next rate hike. If the probability of another hike moves back toward 75% or higher, pressure on the short end of the curve and technology multiples will intensify.

Brent remains near the psychological $100 level after sharp fluctuations in recent days. Earlier, oil’s rise above $100 had already become one of the factors increasing inflation risks and Treasury yields.

For the Nasdaq, the chain is as simple as possible:

oil ↑ → inflation expectations ↑ → rate expectations ↑ → Treasury yields ↑ → discount rate ↑ → growth stock multiples ↓.

That is precisely why technology companies react more strongly to movements in Treasuries than more cyclical and value segments.

When the risk-free yield exceeds 5%, it becomes harder for investors to justify extreme company valuations, especially when a significant share of expected profits lies far in the future.

The math here is simple: the higher the discount rate, the lower the present value of future cash flows.

Therefore, the market faces a choice. If Treasury yields remain above 5%, technology companies have to demonstrate even faster earnings growth to maintain their previous multiples.

Otherwise, it is no longer earnings that must adjust, but business valuations.

And What Is the Result?

The Nasdaq is now trading not so much against corporate earnings reports as against the cost of capital.

A strong U.S. economy is not in itself a problem for stocks. The problem is its combination with expensive oil, accelerating costs, and the 10-year Treasury yield above 5%.

A trader needs to monitor several indicators:

US10Y.

A sustained return of the yield below 5% will reduce pressure on the technology sector. Consolidation above 5.15–5.20% will signal continued pressure on multiples.

US10Y:

A sustained return of the yield below 5% will reduce pressure on the technology sector. Consolidation above 5.15–5.20% will signal continued pressure on multiples.

Brent:>/p>

Stabilization below $100 will reduce the inflation premium. A return and consolidation above $105–110, by contrast, will increase the risk of further yield growth and a hawkish Fed response.

Rate expectations.

What matters here is not a specific figure on a single day, but the direction of movement. If the probability of an October hike again approaches 75% or higher, aggressively buying the Nasdaq dip becomes significantly riskier.

U.S. PMI.

As long as the economy accelerates simultaneously with rising price pressures, strong macroeconomic data can work against stocks. A weak PMI accompanied by declining inflationary pressure would give the market a completely different signal.

If US10Y consolidates above 5%, the market will have to prove that future earnings growth at technology companies can compensate for the new cost of capital. If there is no such evidence, the next phase of the correction may come not through a revision of Fed expectations, but through multiple compression.

Therefore, the main indicator for the Nasdaq right now is not on the Nasdaq. It is in the Treasury market.

So we act wisely and avoid unnecessary risks.

Profits to y’all!