Your stock portfolio increasingly hinges on the bond market — and the midterm elections
Your stock portfolio increasingly hinges on what happens in the bond market — and the midterm elections.
Tech stocks in late October caught the cold that for months has been a dragon the corporate bond market.
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Poorly performing high-quality “hyperscaler” debt has become a feature — not a bug — of credit markets this year, as buyers of corporate debt struggle to keep up with the capital needs of the AI juggernaut.
“The bond market has a cold. The equity market may have a cold; and the culprit comes from tech,” said George Catrambone, head of fixed income, Americas, at DWS, on Friday.
The tech selloff sharpened Friday, landing giants like Amazon AMZN, Alphabet GOOG, Meta META,Intel INTC, Oracle ORCL and SpaceX SPCX all in the red, along with semiconductor SOX stocks and other AI hot spots EWY in the market.
Stock market gains have relied on tech in recent years. But bond portfolios also now hinge on tech borrowing, upping the stakes for all things AI to pay off.
See:The selloff in tech stocks is shifting into overdrive
Concerns about the industry’s $1 trillion in expected yearly capital expenditures aren’t new. Yet investors this week began rewarding those willing to tap the breaks on heavy debt issuance. There’s also been swift backlash for others.
Oracle’s beleaguered stock finished the week higher after executives indicated a lighter borrowing load for AI going forward. Shares of Alphabet were punished on signs thatAI’s advance may encroach on a crucial part of its business, even as its data-center spending push continues.
The recent shift in tone also speaks to why investors welcomed Microsoft’s MSFT new $25 billion bond on Thursday. The company carries higher credit ratings than the U.S. government, has issued less debt than its peers and reported positive free-cash flow of $18.6 billion during earnings this week.
Of note, Microsoft’s 10-year tranche of bonds priced at a yield of roughly 5.5%. That compares with the 10-year Treasury yield BX:TMUBMUSD10Y at 4.93% on Friday Not every big tech company is expected to get as favorable pricing
“Of course it’s going to see good demand,” said Peter Boockvar, chief <a href="https://bitcomme.com/forget-anthropic-this-is-the-best-ai-investment-to-buy-and-hold/” title=”Forget Anthropic, This Is the Best AI Investment to Buy and Hold”>investment officer at OnePoint BFG Wealth Partners, of Microsoft’s bond deal. Yet for most companies borrowing to build AI infrastructure, the cost of capital has gone up, he added.
