Here’s how far the Nasdaq could fall if bond yields reach 2%

By Steve Goldstein

Last Updated: March 12, 2021 at 8:48 a.m. ET First Published: March 12, 2021 at 6:27 a.m. ET



Like planes, stocks can go down as well as up. AFP VIA GETTY IMAGES


In early Friday action, the yield on the 10-year Treasury was rising and Nasdaq 100 futures were falling.

That’s been the pattern over the last month. After a very close connection since the pandemic began, inflation-adjusted yields have kept climbing, but the Nasdaq 100 has suffered. That makes sense given the rich valuation tech stocks enjoy — when safe bonds offer more than crumbs as return, they present an investment alternative to stocks.

So analysts are now modelling just how far techs could fall if bond yields keep rising. Joe Kalish, chief global macro strategist at Ned Davis Research, says the Nasdaq 100 could fall 20% from its peak if the 10-year Treasury reaches 2%. (The index is already down 6% from its peak.)

Kalish’s calculation depends on other relationships holding steady. He says earnings yields and forecasted corporate bond yields have moved in tandem since 2014. A 2% 10-year Treasury would likely cause the bond yields on Baa-related bonds — the lowest investment-grade rating — to reach 4.5%, requiring a 20% drop in the Nasdaq 100 to keep that relationship consistent.