A recent Economist article caught my eye: "Why American tech stocks are newly vulnerable"

One key quote stood out out - not about the mega caps but their customers “Whereas they themselves are profitable, many of their customers—whether for Nvidia’s chips or Amazon’s web services—are smaller, loss making startups much further down the AI food chain. Part of the tech giants’ explosive profit growth has therefore come from the floods of cash venture-capital firms and other financial institutions have poured into such startups in recent years. For that to continue, capital must remain plentiful and relatively cheap. Neither is likely if investors continue to worry about the future and prefer buying insurance to taking risk.”

A very fair comment – 3 points from Quant Insight's risk model to elucidate:
1. Across the major sectors, Technology is the only sector that benefits from higher real rates not lower. (see below)
2. The largest 10 stocks in the S&P500 (36% of index market cap) have on average positive exposure to real rates; For the rest, negative (see below)
3. The equal-weighted S&P 500 is now more negatively sensitive to 10-year real yields than at any point in the last decade (see below)

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Why does this matter?

Facing an uncertain economic outlook, it is clear that outside the mega cap growth stocks, lower real yields still underpin the narrative