{"id":51324,"date":"2023-08-21T20:56:14","date_gmt":"2023-08-22T00:56:14","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/what-tech-and-housing-stocks-have-in-common-and-why-theyre-both-risky\/"},"modified":"2023-08-21T20:56:17","modified_gmt":"2023-08-22T00:56:17","slug":"what-tech-and-housing-stocks-have-in-common-and-why-theyre-both-risky","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=51324","title":{"rendered":"What Tech and Housing Stocks Have in Common\u2014and Why They\u2019re Both Risky\u00a0"},"content":{"rendered":"
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Tech and home-building stocks have something in common, believe it or not. They\u2019re both ultrasensitive to bond yields, which is why they\u2019ve been sliding\u2014and why they could keep losing. <\/p>\n

In less than a month, the
\n 10-year Treasury yield
\n is up over 4.3% from just below 4%\u2014pushed higher by market fears that the Fed will keep interest rates higher for longer to make sure inflation really is in check. <\/p>\n

\n

For home builders, higher interest rates have ultimately translated into higher mortgage rates from lenders, which keeps many prospective buyers out of the game. Last week, for example, the average 30-year fixed-rate mortgage climbed to 7.09%, the highest in more than 20 years. <\/p>\n

In tech, many companies are valued on the basis that a bulk of their profits will arrive years from now\u2014and higher long-dated bond yields make future profits less valuable.\u00a0 <\/p>\n

Consequently, tech and home-building names are down. The
\n SPDR S&P Homebuilders exchange-traded fund
\n (ticker: XHB) is off 6% from its high this year, hit in early August. And the Nasdaq 100, a tech-heavy index of 101 of the largest nonfinancial names on the
\n Nasdaq Composite,<\/span>
\n has lost 7% from this year\u2019s peak in mid-July. \u00a0<\/p>\n

But as tempting as it might be to buy the dip, now may not be the best entry point for buyers.<\/p>\n

Here\u2019s why: It\u2019s quite possible that there are more losses ahead simply because the 10-yield might very well rise even more. It had topped out at roughly 4.2% in October, but found the muster to march on. <\/p>\n

Investors have been unloading bonds. Falling prices push yields up. So the selling at this 4%-plus level signifies it is now anybody\u2019s guess when the selling, and the rising yield, will stop. <\/p>\n

The Fed could well have a hand in what happens in the short term. If the central bank signals at its annual Jackson Hole summit this week that it plans to keep rates higher for longer, the selling could keep going\u2014and the yield would keep rising. <\/p>\n

If that happens, expect home builder stocks to really feel the pain. Bank of America strategists describe the sector as one of the most vulnerable to the 10-year yield. <\/p>\n

\n Home Depot
\n (HD) is an example. While the home-improvement reported better-than-expected sales and earnings just a week ago, both measures dropped year over year because of weakening housing demand. And management didn\u2019t increase EPS guidance for this year, a decision that reflects the outlook for demand, especially given the level of mortgage rates.\u00a0<\/p>\n

To go along with the poor outlook, the stock is a risky bet because it\u2019s expensive. Shares trade at 20.8 times analysts\u2019 forward EPS estimates, almost 12% above the
\n S&P 500\u2019s<\/span>
\n aggregate price\/earnings multiple, according to FactSet. The stock, for reference, often trades in line with the market when home builders are out of favor. More declines are in store until the economic outlook improves.\u00a0<\/p>\n

For the stock to flourish from here, \u201cinvestors will likely need clearer signs the housing market is improving and consumers are taking on more and larger projects,\u201d wrote Joe Feldman, analyst at Telsey Advisory Group.\u00a0<\/p>\n

Tech, too, has more downside risk. The Nasdaq 100, at around 14800, has dipped below its 50-day moving average of just over 15000. That means there haven\u2019t been many buyers at a recent average of prices, which signifies the market may have lost enough confidence to send the index further south from here. <\/p>\n

The index could fall to about 13600, according to Evercore strategists\u2014a support level where buyers propped it up in May, which was part of a double-digit rally for the year. That rally may just need to keep taking a breather right now.\u00a0<\/p>\n

At some point soon enough, all these stocks should become buys. But let bond yields settle out first.\u00a0<\/p>\n

Corrections & amplifications<\/strong>: Joe Feldman is an analyst at Telsey Advisory Group. An earlier version of this article incorrectly said Joe Feldan works at Kelsey Advisory Group.<\/em><\/p>\n

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Tech and home-building stocks have something in common, believe it or not. They\u2019re both ultrasensitive to bond yields, which is why they\u2019ve been sliding\u2014and why they could keep losing. In less than a month, the 10-year Treasury yield is up over 4.3% from just below 4%\u2014pushed higher by market fears that the Fed will keep […]<\/p>\n","protected":false},"author":1,"featured_media":51325,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-51324","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nWhat Tech and Housing Stocks Have in Common\u2014and Why They\u2019re Both Risky\u00a0 | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Tech and home-building stocks have something in common, believe it or not. 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