December 20, 2021

Big Tech Vulnerable to Fed Mistake

The composition of the Treasury rally is consistent with a Fed policy mistake that puts Big Tech stocks at risk. While long-dated bond yields have fallen since last week’s hawkish FOMC statement, the rally has been driven by declining long-term inflation expectations. In contrast, 10-year TIPS yields are up 25 basis points from last month’s low. The Chart shows that real bond yields and FAANGM relative performance move inversely. Having said that, these world-beating companies with robust cash flows remain candidates for an eventual mania-like overshoot. Any vicious correction would ultimately ingrain a “buy the dips” mentality once the pullback runs its course.