Treasury yields 'a two-sided risk' ahead of tech earnings
Mega cap tech companies are set to report earnings this week, starting with Google (GOOG, GOOGL) and Microsoft (MSFT) on Tuesday. While tech sector gains have been driving the stock market, rising Treasury yields have inversely been putting pressure on stocks.
BMO Wealth Management Chief Investment Strategist Yung-Yu Ma joins Yahoo Finance Live to discuss the interplay happening in markets between tech drivers and bond yields.
"What we've seen in the marketplace is really abrupt shifts in terms it of market narrative, and right now I do think the yields are a... two-sided market," Ma says. "And we actually increased our duration in our fixed income portfolios just the other day as well..."
Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.
Video Transcript
- It's [? carry ?] the markets because of the expectation that AI would also be a major contributor to some of these companies future financial performances that getting priced into valuations. Do you think that we're overstretched at this point? And if so, are we expecting some type of rug pull?
- I don't think we're overstretched. I think the market certainly has high expectations for these companies but-- in terms of the future prospects and how AI plays into that. But I don't think they're overdone here. I think there is great promise.
I think these mega-cap technology firms are very well positioned to capitalize on trends going on, and the strength that they've had previously, I think, is going to continue into the future. So there is an element right now where deep pockets and strong market power is certainly adding to their prospects going forward. And I think that will continue to be the case.
- So do you think then, and I guess, these earnings results may be hold heavier weight with the markets, at least, short-term direction right now than the massive rise that we've seen in yields? Is that right?
- Well, I think both are in play, right-- both are in play. I think, as long as yields are not rising, if yields-- the 10-year Treasury yield, for example, stays stable where it is, then I think there can be a renewed focus on earnings, what the trajectory is for these mega-cap tech companies, and of course, other companies in the economy.
But if yields start renewed climb that's a sharp turn upward, then the focus can shift a bit. That's what we've seen in the marketplace. It's really abrupt shifts in terms of the market narrative. And right now, I do think the yields are kind of a two-sided market.
We actually increased our duration in our fixed income portfolios just the other day as well to take a neutral duration rather than be short duration because we do think there's two sided risk now to these longer term Treasury yields.
But it's important for them to stay stable. If they continue to climb as they have been for the past few months, that certainly will pressure the markets here.
