As the QQQ nears a big inflection point, bond yields are testing highs of a key trading range. While the Nasdaq is up more than 5% YTD, the situation is a bit more tenuous.
Interest rates have been steadily increasing when compared with historic ranges, with 10 and 30 year Treasury yields hitting a high of 2.06% and 2.43% respectively. This could spell danger for stocks that have remained elevated on the low rate backdrop.
The Federal Reserve is expected to increase short-term interest rates .25% this year, putting pressure on valuations. This means that earnings for a stock become less valuable as interest rates rise. High-valuation stocks, especially the technology sector, could also come under pressure, although the market could remain relatively resilient so far.
In the bond market, rising yields translate to lower prices. With the rising yield, investors are selling bonds to buy stocks, as rates are seen as attractive. This is putting upward pressure on yields, which means higher costs to borrow.
The QQQ, which tracks the Nasdaq 100, is seeing higher interest rates in the near-term Outlook. As bond yields move up, the QQQ could be at risk of a downturn if central banks are unable to contain the situation.
The outlook for the QQQ is less clear if yields keep rising, and the broad market and tech sector have moved from strength to strength in the past few months. However, investors need to be aware of potential risks if the interest rate environment is allowed to continue to increase.
For those looking to stay invested during volatile times, stick to stocks you have a strong conviction in and try to diversify investments in various sectors and assets.
In conclusion, rising Bond Yields pose a risk to the QQQ amid an otherwise bullish environment. Investors should be mindful of this and maintain their risk management strategies. This would help to keep them protected during volatile times and would result in better returns in the long-run.