Rising Yields Are Squeezing Stocks, Except in Tech

Since September 1, nearly every corner of the S&P 500 has struggled to keep pace with the rising cost of money. The exception is technology, the only one of the index's 11 sectors to finish higher over that stretch. The backdrop is a Treasury market where yields have climbed to levels not seen in decades, a shift that typically makes stocks harder to justify.

That pattern is what makes the divergence stand out. Higher yields raise borrowing costs for companies and give investors a more attractive alternative in government bonds. The pressure tends to fall hardest on richly valued companies whose profits are expected far in the future. Technology has long been among the groups most exposed to rates for exactly that reason, so its advance runs against the usual playbook.

Several explanations are circulating. Large technology companies generate substantial cash and carry relatively little debt, so higher rates cost them less than they cost more heavily indebted businesses. Strong demand tied to artificial intelligence has also kept earnings expectations rising, which gives investors a reason to pay up for the group even as the discount rate climbs. Some of the buying may simply reflect money moving toward the sector's largest names as a perceived safe harbor within growth stocks.

The concentration cuts both ways. A small number of very large companies carry substantial weight in the index, so the sector's gains can make the broader market look healthier than the typical stock feels. Groups such as utilities, real estate and consumer staples, which tend to be sensitive to borrowing costs, have lagged. If yields keep climbing, investors will be watching whether technology's resilience holds or whether the group eventually feels the same squeeze as the rest of the market.