US Treasury Yield Surge and Nasdaq Weakness: Background of Tech Stock Valuation Adjustment

Decoupling of Macroeconomic Slowdown and Surging Treasury Yields

Recently, major US Treasury yields have shown a steep upward trend in the bond market. As of mid-August 2026, the US 10-year Treasury yield surpassed the 4.8% mark and continues its rapid ascent. Generally, when the real economy slows down, capital flocks to safe-haven assets like government bonds, causing yields to fall. However, the current market is exhibiting an unusual and contradictory pattern.

Complex factors are underlying this phenomenon. The July US retail sales data recently released by the Commerce Department fell 0.1% month-over-month, significantly missing the market expectation of a 0.3% increase. A sharp decline in sales of automobiles and parts was cited as the main driver, but growth in the online sales and dining sectors also slowed. Furthermore, the preliminary August Consumer Sentiment Index compiled by the University of Michigan dropped to 67.2, down 2.1 points from the previous month, clearly signaling a contraction in future consumer spending capacity. The reason Treasury yields are rising despite the sluggishness of key consumption indicators that support the real economy is twofold: the supply burden resulting from massive US government bond issuance driven by expanding fiscal deficits, and the bond market's growing vigilance against entrenched global inflation, both of which act as upward pressure on long-term yields.

In particular, market expectations for interest rate cuts have significantly receded as Federal Reserve officials continue to make hawkish remarks, warning against premature monetary policy easing before achieving price stability goals. This uncertainty surrounding monetary policy has prompted bond investors to demand a higher term premium, translating directly into a steeper rise in long-term yields compared to short-term ones.

Prolonged High Interest Rates and Valuation Burdens on Big Tech Stocks

The surge in Treasury yields is applying direct downward pressure on the broader stock market, particularly on tech stocks in the Nasdaq market that command high valuations. Entering the third week of August, the Nasdaq Composite Index turned bearish, falling approximately 2.5% on a weekly basis, while the stock price volatility of major Big Tech companies such as Apple, Microsoft, and Nvidia has also expanded significantly.

Growth stocks, such as tech companies, rely heavily on free cash flows to be generated in the future—ranging from a few years to more than a decade—for a significant portion of their enterprise value. Because the Treasury yield serves as the benchmark for the risk-free rate in the market, an increase in this yield naturally raises the discount rate applied when converting future cash flows to present value. Consequently, even for Big Tech companies producing robust earnings, their intrinsic value is inevitably revised downward. This structural dynamic leads to an outflow of massive sell orders from investors feeling the valuation burden.

• Increased Cost of Capital and Reduced Investment: Rising interest rates fundamentally increase the cost of raising capital for tech companies that allocate a high percentage of funds to new investments and R&D. This not only causes a deterioration in operating profit margins but also acts as a factor delaying the expansion speed of new businesses that require massive infrastructure investments, such as artificial intelligence (AI) and cloud computing.
• Institutional Asset Allocation Rebalancing: When the risk-free rate approaches the 5% level, the relative attractiveness of the equity risk premium—the additional return obtainable from stock investments—plummets. Accordingly, major institutional investors, such as global pension funds and hedge funds, are executing rebalancing by mechanically reducing their equity exposure for risk management purposes and expanding their allocations to bonds that guarantee high yields.

Market Response and Portfolio Rebalancing Strategy

In periods where the volatility of Treasury yields continuously expands, investors must be cautioned against making oversold bets to buy tech stocks simply because their prices have fallen. A close analysis of market data from 2022 and 2023, which were periods of aggressive interest rate hikes, reveals that stocks with low earnings visibility and excessively high price-to-earnings (P/E) ratios were significantly more vulnerable to interest rate shocks.

Considering the current macroeconomic environment, investors need to restructure their portfolios toward quality stocks that possess definite free cash flow (FCF) generation capabilities and stably maintain their return on equity (ROE), rather than chasing indiscriminate top-line growth. With lingering concerns over worsening consumer sentiment and a real economic slowdown, a selective approach is required for sectors like consumer staples and healthcare, which possess defensive characteristics while maintaining high shareholder return ratios through dividends and stock buybacks. Rather than relying on a short-term rebound in the Nasdaq index, this is a crucial juncture to focus on risk management from a highly conservative perspective, based on the actual cash-generating power and financial soundness of companies.

Furthermore, for short-term fund management, it is advantageous to build a defensive bond portfolio centered on high-quality corporate bonds or short-term government bonds rather than high-yield bonds, as the credit risks of marginal companies burdened by increasing interest repayment obligations may become more prominent. In a volatile market environment, the key is to secure sufficient cash allocations within the portfolio to maintain the flexibility to buy high-quality assets at lower prices during sudden market downturns.