Investors are doing something that looks contradictory on the surface: bidding megacap technology shares higher while accepting that long-term borrowing costs may remain elevated. Nvidia, Meta, Microsoft and Tesla helped lift the Nasdaq to a record on Monday.
The tension is important because high Treasury yields raise the discount rate on future corporate earnings and make bonds more competitive with stocks. So far, enthusiasm around AI spending and earnings has been strong enough to offset that pressure for the largest growth companies.
The market is also absorbing a stronger dollar, softer expectations for an October Fed hike and oil prices that have eased from recent highs. That mix favors some risk assets while leaving rate-sensitive areas such as real estate under pressure.
What to watch: whether earnings guidance can validate today’s valuations. If profits disappoint while yields stay high, the cushion supporting expensive growth stocks gets thinner quickly.