Close Menu
Fund Focus News
    Facebook X (Twitter) Instagram
    Trending
    • Mutual funds were USD bulls going into April’s tariff chaos
    • Which is Better for You?
    • Mutual Fund Expense Ratios Remain at Historic Lows for Retirement Savers
    • Mutual Fund Direct Vs Regular Plan: What’s Better And How To Choose | Business News
    • GTT Strategic Ventures investit dans le leader de l’énergie houlomotrice CorPower Ocean
    • SIP vs Lump Sum vs STP Investment: Which route should investors take for mutual fund investment? Know from experts
    • CM Mohan Yadav Invites Inditex To MP With Open Arms For Investments And Business Partnerships
    • Dubai real estate: PRYPCO Mint tokenises $2.5m of property in first month
    Facebook X (Twitter) Instagram
    Fund Focus News
    • Home
    • Bonds
    • ETFs
    • Funds
    • Investments
    • Mutual Funds
    • Property Investments
    • SIP
    Fund Focus News
    Home»Bonds»Here’s what a falling bond market means for growth stocks
    Bonds

    Here’s what a falling bond market means for growth stocks

    October 26, 2024


    Growth stocks have largely been resilient over the last month or so. But rising bond yields could be a danger sign for shares that trade at high price-to-earnings (P/E) multiples.

    I think this is something investors should take care of. While I’m not forecasting a stock market crash, being thoughtful about what to invest in is never a bad thing.

    Since the start of the month, the yield on 30-year US government bonds has gone from 4.1% to around 4.5%. And the yield on UK gilts with the same duration has gone from 4.5% to 4.8%.

    That means someone looking for a 30-year investment can get a 4.8% return just by buying bonds. And the risk is relatively low – the UK government is unlikely to not pay its debts.

    Investing £10,000 at 4.8% would get me £14,400 over 30 years. So in order to consider anything else – shares in a business, for example – I’d need to think it could generate more than this.

    The more bond yields increase, the more a company has to make for its shares to be investable at its current price. And the movement in the bond market puts pressure on growth stocks.

    Nvidia’s (NASDAQ:NVDA) a great example. The company’s revenues and profits have been growing explosively and the stock is up 224% over the last 12 months as a result.

    As I write, the current share price is $139. So for the investment to be a viable option, the business needs to be able to generate more than $6.25 a year on average for the next 30 years.

    Analysts expect the company to generate a total of $16.85 in earnings per share between now and the end of 2027. By that point, the bond will have returned the equivalent of $25.

    That means Nvidia’s going to have to grow – a lot – to justify its current share price. The big question is whether or not it’s going to be able to do it.

    None of this means that Nvidia shares – or growth stocks in general – are overvalued, or that they’re set to fall. And there’s a lot for investors to be optimistic about.

    The company’s customers have extremely deep pockets. Whether it’s big tech firms or even nation states, I don’t think there’s much chance of demand dropping off due to pressure on budgets.

    The big question, in my view, is whether or not the business can hold onto its competitive position. This is crucial to maintaining its high margins and increasing its profits.

    The likes of Microsoft and Meta Platforms will know that Nvidia has a 54% operating margin. And I wouldn’t be surprised to see them investing in their own chip development to try and compete.

    The higher bond yields go, the more businesses need to make to justify their current share prices. But growth stocks in general have been resilient over the last month or so.

    This indicates that investors are optimistic about corporate earnings. In short, they still think companies will return more cash than bonds will.

    The post Here’s what a falling bond market means for growth stocks appeared first on The Motley Fool UK.

    More reading

    Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Meta Platforms, Microsoft, and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

    Motley Fool UK 2024



    Source link

    Share. Facebook Twitter Pinterest LinkedIn Tumblr Telegram Email

    Related Posts

    Encore 40 circuits pour Bonds

    July 16, 2025

    Taux : nouvelle tension inquiétante au Japon, T-Bonds figés

    July 14, 2025

    Rakbank rejoint la plateforme Al Manassah de National Bonds pour faciliter l’accès aux sukuks

    July 14, 2025
    Leave A Reply Cancel Reply

    Top Posts

    Mutual funds were USD bulls going into April’s tariff chaos

    July 17, 2025

    Qu’est-ce qu’un green bond ?

    December 7, 2017

    les cat’ bonds deviennent incontournables

    September 5, 2018

    ETF : définition et intérêt des trackers

    May 15, 2019
    Don't Miss
    Mutual Funds

    Mutual funds were USD bulls going into April’s tariff chaos

    July 17, 2025

    Mutual funds were USD bulls going into April’s tariff chaos – Risk.net Skip to main…

    Which is Better for You?

    July 17, 2025

    Mutual Fund Expense Ratios Remain at Historic Lows for Retirement Savers

    July 17, 2025

    Mutual Fund Direct Vs Regular Plan: What’s Better And How To Choose | Business News

    July 17, 2025
    Stay In Touch
    • Facebook
    • Twitter
    • Pinterest
    • Instagram
    • YouTube
    • Vimeo
    EDITOR'S PICK

    MAOLI – LAST SIP OF SUMMER TOUR

    March 31, 2025

    Protocole SIP : le guide complet

    February 6, 2024

    Bond investing making a comeback on rate cut forecasts: Panel

    August 15, 2024
    Our Picks

    Mutual funds were USD bulls going into April’s tariff chaos

    July 17, 2025

    Which is Better for You?

    July 17, 2025

    Mutual Fund Expense Ratios Remain at Historic Lows for Retirement Savers

    July 17, 2025
    Most Popular

    ₹10,000 monthly SIP in this debt mutual fund has grown to over ₹70 lakh in 23 years

    June 13, 2025

    ₹1 lakh investment in these 2 ELSS mutual funds at launch would have grown to over ₹5 lakh. Check details

    April 25, 2025

    ZIG, BUZZ, NANC, and KRUZ

    October 11, 2024
    © 2025 Fund Focus News
    • Get In Touch
    • Privacy Policy
    • Terms and Conditions

    Type above and press Enter to search. Press Esc to cancel.