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Why tech stocks hate high interest rates



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Tuesday, January 31, 2023

Today’s newsletter by Julie Heyman, Anchor and Correspondent for Yahoo Finance. Follow Julie on Twitter @tweet. Read this and more market news on the go with Yahoo finance app.

It’s a refrain we’ve heard at Yahoo Finance for months: Technology stocks can’t turn around until the Fed stops raising interest rates.


Or at least until investors think the Fed will stop soon.

The Nasdaq has rebounded this year, as investors look to the central bank to “pivot” away from higher interest rates and toward a halt or cut. This expectation is part of the reason why yields on the benchmark 10-year Treasury note have fallen from 4.24% in late October to about 3.5% now.

It’s also part of the reason for the rebound in technology stocks.

So why is rising interest rates such a problem for tech stocks in the first place?

In general, technology companies are, by and large, growth companies.


To support this growth, they rely in part on borrowing money, regardless of whether companies use that money to hire software engineers, produce must-have broadcast offerings, or make smartphones. When interest rates are low, it is cheaper to borrow more money for more initiatives and growth and growth and growth.

At the same time, investors who want high returns are incentivized to invest in growth stocks when rates are low.

“The logic is that tech stocks are the ultimate long-term asset,” said Steve Sosnick, chief strategist at Interactive Brokers. During the 2000s, tech stocks were definitely seen as a more attractive investment than putting money into low-risk, low-return government debt. (A note about programming: Sosnick will be joining Yahoo Finance Live at 9 a.m. ET today.)

Returns followed. The Nasdaq 100 – an index of the largest technology stocks – rose nearly 1,500% between its previous big bear market low on November 20, 2008, and its most recent high on November 19, 2021. S&P 500, Bigger, More Stocks rose Diversified by 609% during its upward march from March 9, 2009 to January 3, 2022.


The pandemic and ensuing inflation from fiscal stimulus and choked supply chains started the Fed’s push to raise interest rates, upending the investment narrative of the previous decade. In 2022, the Nasdaq 100 is down 32%, its worst annual performance since the financial crisis.

Jefferies analyst Brent Thill has been examining the link between pricing and software stocks, which he covers, in particular.

Thill sees a clear positive relationship between prices and energy stocks and a negative relationship between rates and stocks of software companies. In other words, lower rates are good for technology and higher rates are good for energy. Which is exactly what happened in 2022 for investors.

This chart shows what investors discovered in 2022 – high rates are bad for tech stocks and good for energy stocks. (Source: Jefferies)

“I think the lingering problem here is that high rates have to be discounted in the cash flow models used to value technology stocks and strong growth,” said Paul Meeks, veteran technology investor, portfolio manager at Independent Solutions Wealth Management. “If rates are high and stay higher, valuations can’t expand significantly even when fundamentals improve.”

Meeks also notes another phenomenon that accompanied low rates: private market valuations swelled as investors poured money into startups. This has now also been reflected.


“High prices stop America’s engine of innovation because they will continue to stifle venture capital, private equity, and credit investments,” Mix argued.

This week, tech giants including Amazon (AMZN), Alphabet (GOOGL), and Apple (AAPL) are set to report quarterly results.

Apple CEO Tim Cook listens to US President Joe Biden deliver remarks about his economic plan at the TSMC Semiconductor manufacturing facility in Phoenix, Arizona, on December 6, 2022)

Apple CEO Tim Cook listens to US President Joe Biden give remarks about his economic plan at TSMC’s semiconductor manufacturing facility in Phoenix, Arizona, on December 6, 2022 (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)

On last week’s Tesla (TSLA) earnings call, CEO Elon Musk highlighted the impact on the affordability of his vehicles due to higher interest rates, saying “high interest rates alone [effectively] Raise the price of our cars in the US by about 10%.

Investors will no doubt be looking for these companies’ opinions on how interest rates will affect their plans for future growth.

Although Amazon and Alphabet have already announced tens of thousands of job cuts, investors certainly had an idea.


What are you watching today


  • 8:30 a.m. ET: labor cost indexQ4 (1.1% expected, 1.2% qoq)

  • 9:00 a.m. ET: FHFA Home Price IndexNovember (-0.5% expected, 0.0% yo prior)

  • 9:00 a.m. ET: S&P CoreLogic Case-Shiller 20 City Compositeon a monthly basis, November (-0.65% expected, -0.52% over the previous month)

  • 9:00 a.m. ET: S&P CoreLogic Case-Shiller 20 City CompositeYoY, November (6.70% expected, 8.64% over the previous month)

  • 9:00 a.m. ET: S&P CoreLogic Case-Shiller US National Home Price IndexNovember (9.24% over the previous month)

  • 9:45 a.m. ET: MNI Chicago PMIJanuary (45.1 expected, 44.9 over the previous month, revised to 45.1)

  • 10:00 a.m. ET: Consumer Confidence Conference BoardJanuary (expected 109.0, 108.3 over the previous month)

  • 10:00 a.m. ET: Conference board current statusJanuary (147.2 over the previous month)

  • 10:00 a.m. ET: Conference board forecastsJanuary (82.4 over the previous month)


  • advanced micro devices (AMD), Amgen (AMGN), Boston Properties (BSX), Larva (Never), Exxon Mobil (XOM), general motors (GM), Juniper Networks (JNPR), Petroleum Marathon (MPC), Match set (MTCH), McDonald’s (MCD), Mondelez International (MDLZ), NVR (NVR), Pfizer (PFE), Phillips 66 (PSX), Pitney Bowes (PBI), pop (pop, explode) Cisco (the reason), UBS (UBS)

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Rast’s accusations against Alec Baldwin were formally dismissed by Reuters




© Reuters. FILE PHOTO: A view of the movie “Rust” playing at Bonanza Creek Ranch near Santa Fe, New Mexico, US January 20, 2023. REUTERS/Drone Base/File Photo

Written by Andrew Hay

TAOOS, New Mexico (Reuters) – Special prosecutors in New Mexico on Friday dropped charges against actor Alec Baldwin in the 2021 shooting of “Rust” cinematographer Halina Hutchins, referring to what many legal analysts described as a rationale for a prosecution. flawed jurisprudence.

A person close to prosecutors said the move followed new evidence of the gun Baldwin was carrying when he fired the shot that killed Hutchins while shooting the movie in Santa Fe, New Mexico.

This information undermined the prosecution’s case after a series of legal flops, leading them to dismiss the charges before a May hearing when a judge was to decide whether there was enough evidence to prosecute Baldwin and gunsmith “Rust” Hannah Gutierrez Reid.


“The case was dismissed without bias and the investigation is active and ongoing,” prosecutors Carey Morrissey and Jason Lewis said in a memo.

Prosecutors went on to charge Gutierrez Reed, 25, with manslaughter. She has said she held the live round in the gun thinking it was a dummy round. The preliminary hearing in her case has been postponed to August 9.

The dismissal of the same charge against Baldwin came after his attorney presented evidence last week that the copy of the .45 Colt Baldwin has used has been modified with new parts since being manufactured by Italian gunsmith FLL Pietta.

The information compromised the prosecution’s argument that the gun was in fully working condition and could only fire if Baldwin recklessly pulled the trigger, according to the person familiar with the case.

Special prosecutors have said they may re-file charges against Baldwin once new evidence is examined, though legal experts are skeptical.


“This very weak case against Baldwin should never have been brought in the first place,” said Ambrosio Rodriguez, a former district attorney with the District Attorney’s Office in Riverside County, California.

Filming for “Rust” resumed in Montana this week with many of the same lead actors, including Baldwin, and was expected to wrap up in May.

Rust Movie Productions (RMP) said in February that it would not resume filming in New Mexico, without giving a reason. A Santa Fe prosecutor charged Baldwin and others in January.

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Leading news reporter Jill Christian dies at 83




Gail Christian, who broke barriers as a black on-air reporter and came to national prominence at NBC News and PBS, died April 12 in Los Angeles. She was 83 years old.

Her wife, Lucy Debardelapine, said it was a complication from a recent bowel surgery.

Christian overcame a troubled youth—including a prison term for armed robbery—to end a career as a prominent television journalist and news executive in the 1970s and 1980s, an era when the industry was dominated by white men.

It became a visible presence in American living rooms with it coverage to NBC News on the trial of Patricia Hearst, the newspaper heiress who was kidnapped in 1974 by a gang of left-wing revolutionaries called the Symbionese Liberation Army, and who was convicted two years later for participating in a bank robbery with the group.


But for Ms. Christian, it wasn’t enough just to appear as a rare black face on the evening news.

She said in Interview with the Chicago Tribune In 1986. I felt that was the reason I was there. I didn’t resent it in the least. I felt then, as I feel now, that it is very dangerous for a group of people to live in a society in which they are not allowed to explain themselves.”

It has succeeded in this task with features like “A Country Called Watts”, An hour-long 1977 NBC News special that explored the efforts of residents of this Los Angeles neighborhood to come together and re-evaluate the bloody civil unrest that occurred in response to police brutality in 1965, rebuilding burned-out blocks in the face of perceived government indifference and continued police harassment.

Gary Gilson, former faculty director of a summer program for minority students at Columbia University’s Graduate School of Journalism, in a phone interview. “And her pioneering role as a black news reporter allowed black kids to see, many for the first time, an impressive person on television who looked like them. It gave them recognition and hope.”

After two years at NBC News, Ms. Christian became news director for public station KCET in her hometown of Los Angeles, where she created a “60 Minutes”-style investigative series called “28 Tonight” (the station was on channel 28).


The program featured several award-winning segments, including a segment on a banking scandal that harmed low-income communities and another on a chemical spill in Orange County that caused illnesses in the area, each of which won a Peabody Award.

In 1981 she moved to Washington, where she began nearly a decade as the news director for the Public Broadcasting Service.

“Since I’ve been in the business, I’ve always wanted to be one of the officers who goes out in that little room and decides what’s going to be covered and who’s going to cover it,” she said in a 1976 interview with the Los Angeles Times. “But at NBC, I never saw any women walk into that little room. Nor any minorities. I thought this was my chance.”

She added, “As Bobby Seale said,” referring to one of the founders of the Black Panther Party, “take the time.”

Jill Christian Jill Patricia Wells was born on February 20, 1940, in Los Angeles, one of four children of Edwin Wells, who worked on an assembly line for the Hughes Aircraft Company, and Lucille (Scruggs) Wells, who owned a cosmetology college. In the Leimert Park neighborhood of South Central Los Angeles. (She later adopted Christian, a name from her mother’s family, as her professional surname.)


Ms. Christian grew up in Venice, California, and spent three years studying world history at California State University, Los Angeles, before dropping out to join the Air Force in 1962. She was caught in a raging crowd after being discharged, and in 1965, was found guilty of Armed robbery after eroticism in a hotel.

The theft, which resulted in less than $100, led to her admission to the California Institute for Women in Chino for 18 months. Christian said in a 1976 interview with TV Guide. “I really didn’t need to do that. I had a loving family, unlike a lot of the others in prison. I was just kind of pushed out at the time.”

After she had served her time, a paroled colleague who was working as a switchboard operator at The San Francisco Examiner gave her a tip that the paper was planning to hire two black reporters to diversify its staff. Without any experience, Ms. Christian considered the opportunity far-reaching, but talked her way into the role of an apprentice by stretching the truth.

“I gave them this song and they danced around working on this little black paper that the Klan burned,” she told the Tribune.

In 1970, she participated in an 11-week summer program for minority students in broadcast journalism at Columbia. (Geraldo Rivera was a classmate.) Two years later, she was hired by local NBC affiliate KNBC. She worked there for six years before NBC News hired her.


Her tenure at PBS ended in 1989, shortly after the network found itself embroiled in controversy over the airing of a pro-Palestinian documentary, Days of Rage, which Ms. Christian had acquired and was responsible for vetting. A news report confirmed that the film was partially supported by undisclosed Arab funding, which was denied by the film’s producer.

In an interview with The New York Times, Ms. Christian said she quit PBS for other reasons. She said, “You’re burning because this is a no-win situation.” “You are silent when things are going well and angry when there are questions.”

She eventually settled in Palm Springs, California, with Mrs. DeBardelaben, whom she married in 2016. In 2003, the couple started the Palm Springs Women’s Jazz Festival.

In addition to Mrs. DeBardelaben, Mrs. Christian is survived by her grandson. Her daughter, Sunday Barrett, died in 2019.

While Ms. Christian kept quiet about her prison term early in her career, she finally decided to divulge it to a sympathetic NBC executive. “The guy just looked at me,” she recalls. He says: I don’t have enough problems. Do I have to listen to you? Get outta here.’ I didn’t hear another word.”


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Economic mood and other investment stories you may have missed this week




This week has been a tough bullish one. Here’s what investors saw:

  • Oil prices have given up most of the gains from the OPEC+ production cut.

  • The Philadelphia Fed Manufacturing Index hit a new low for this economic cycle and missed expectations. Other indicators from the Conference Board The leading economic indicator I also fell.

  • Initial jobless claims were a surprise to the upside for the fourth consecutive week.

  • Weak earnings and more caution emerged from freight operators JB Hunt and Union Pacific as well as auto retailer AutoNation. Netflix and Taiwan Semiconductor, a major supplier to Apple, also issued guidance warnings.

  • There have been more layoffs in Meta’s Cloroxwith reports of planned job cuts at Disney.

  • Tesla reported a quarterly gross margin loss recently price cuts.

The bottom line is that there is an ongoing negative shift in economic data, most likely as interest rates continue to rise in the economy. This is a red flag.

Oddly enough, however, investors can’t seem to jump into it judging by the resilience of the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average.

“The latest data is further evidence that there will be a recession in the US soon, which fits with our own view at DB Research that it is expected to happen later in the year,” Jim Reed, Deutsche Bank strategist wrote in the client note.


Good words of wisdom now.

Tesla CEO Elon Musk speaks to a visitor as he arrives to look at the Tesla Gigafactory construction on September 3, 2020, near Gruenheide, Germany. (Photo by Maja Hitij/Getty Images)

3 things you might have missed

1. The mood among AmEx cardholders: I met with American Express CEO Stephen Squarey, and he struck an optimistic tone about order trends.

“The economy is definitely divided, and I think at the lower end of the economy, we’re seeing some pressure, but we don’t have that,” Squirey said, adding that he sees strong demand for travel in the spring and summer. The call to travel lines up with what we’ve heard about this earnings season from Delta and United Airlines.

2. Elon Musk is following the storm. An interesting highlight from Tesla’s earnings call was when Elon Musk said he didn’t see the economy improving until 2024. The CEO predicted another year of “stormy economic weather” before “things start to get sunny in the spring of next year.”


Musk joins the likes of JPMorgan CEO Jamie Dimon in using weather to describe the economic outlook.

3. About this credit cost: In an exclusive on Yahoo Finance Live, Loretta Mester, President of the Federal Reserve Bank of Cleveland, tells Jane Schoneberger that there is only one direction for interest rates in the near term: higher.

“I think that, given the complexity of inflation, and given the still-strong job market, I think rates should go above the 5% level,” Mester said.

Loretta J.  Jim Urquhart

Loretta J. Jim Urquhart

C-Suite, quote of the week

“We are not seeing a significant drop in trade [among consumers]John Mueller, CEO of Procter & Gamble (PG) told Yahoo Finance Live. We are witnessing, if anything, more careful use of the product they purchased. So they might use half a sheet of a Bounty paper towel instead of a full sheet. But overall, again, just looking at the numbers, the consumer holds up very well.”

planner of the week

For those investors who are ignoring the dangers of the impending debt ceiling, here’s a helpful reminder from the macroeconomics team at Goldman Sachs on how markets will price in the 2011 debt ceiling debate:

Remember the debt ceiling debacle of 2011?

Remember the debt ceiling debacle of 2011?

Brian Suzy He is the Executive Editor of Yahoo Finance. Follow Suzy on Twitter @tweet and on linkedin. Deal tips, mergers, activist positions, or anything else? Email

Click here for the latest stock market news and in-depth analysis, including the events that move stocks

Read the latest financial and business news from Yahoo Finance

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