Tech Stocks Tumble as Bond Yields Surge on Economic Data

Tech stocks took a beating on Tuesday as investors reacted to a pair of economic releases that sent bond yields soaring and equities plunging. The so-called JOLTS report and the Institute for Supply Management's services index provided a reality check for investors who had been focusing on the monthly jobs report and consumer-price index readings.

Markets started the day in stride, but a pair of economic releases sent yields to the nosebleeds and equities to the basement. The JOLTS report showed a decline in job openings, while the ISM services index came in below expectations. These releases sparked a jump in bond yields, which in turn led investors to ditch tech stocks in favor of safer investments.

The tech-heavy Nasdaq Composite Index fell 2.5% on Tuesday, while the S&P 500 Index slipped 1.4%. The Dow Jones Industrial Average, which is less exposed to tech stocks, fell 0.8%. The sell-off was broad-based, with all 11 sectors of the S&P 500 Index in the red.



The sell-off in tech stocks was particularly pronounced, with the Morningstar US Technology Index falling 5.8% in September despite starting the year with a 15.7% gain. The index has since recovered some of its losses, but remains down for the year.

The sell-off in tech stocks can be attributed to a number of factors, including the rise in bond yields. Higher bond yields make it more expensive for companies to borrow money, which can reduce cash flows and dampen earnings potential. This, in turn, negatively affects fair value and may cause goodwill impairment.

Tech companies with high growth prospects are particularly sensitive to changes in bond yields. Higher interest rates increase borrowing costs, reducing cash flows and dampening earnings potential. This can negatively affect fair value and may cause goodwill impairment. For instance, in 2024, the total number of M&A deals fell 25% year over year to a four-year low, with goodwill impairment being a focus for many tech companies due to higher discount rates.

Despite the sell-off in tech stocks, there are still ways for companies to weather the uncertainty and set themselves up for success when the market reopens. Tech companies can pay off debts, enhance business operations, or leverage AI to optimize costs and improve valuations. For instance, AI startups continue to draw funding despite cooler market conditions, fueled by the promise of varied and numerous applications.

In conclusion, the sell-off in tech stocks on Tuesday was driven by a jump in bond yields, which made it more expensive for companies to borrow money and reduced cash flows. Tech companies with high growth prospects are particularly sensitive to changes in bond yields, but there are still ways for companies to weather the uncertainty and set themselves up for success when the market reopens.