Chip Stocks Didn't Fall on Chip News This Week. They Fell on a 19-Year High in the 30-Year Treasury Yield.
The only company in the semiconductor index that reported this week posted record results.
Chip stocks experienced a sharp decline this week, but not due to negative news from semiconductor companies. The primary driver was a surge in long-term borrowing costs, with the 30-year U.S. Treasury bond yield reaching 5.33%, its highest level since June 2007. This rise added pressure to growth stocks, whose valuations are based on future profits.
The semiconductor index dropped about 7% in two sessions, erasing nearly 20% of its value since June 22. Factors contributing to the yield increase include a large U.S. fiscal deficit, persistently high inflation, and rising oil prices. Despite temporary relief, the 30-year yield remains above 5.2%, impacting the discounted value of future earnings for chip stocks with high price-to-earnings ratios.
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