(Bloomberg) — Gone are the days where rising yields spooked Big Tech. Now, they climb together.
But technology stocks also are inflation hedges, especially businesses that sell hardware and have pricing power. So, when it was clear that inflation was getting out of hand, forcing the Federal Reserve to turn hawkish, Big Tech became a source of protection. That led to a more positive correlation. Yes, that correlation is still relatively low, but it’s been building as bets in the bond market anticipate as many as four rate hikes.
Big Tech (including Tesla) makes up almost a quarter of the S&P 500 Index and ~45% of the Nasdaq 100. Those weightings can be both a blessing and a curse to the broader benchmarks, as they tend to lead the stock market to record highs — and spark sell offs. For example, Apple hitting trillion-dollar milestones in market capitalization has historically set off corrections, with reversals coming amid a weaker dollar, fueling bids from investors abroad. That dynamic has made tech and most U.S. more sensitive to the dollar, as they were in 2020, than to yields.
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