(Bloomberg) --
The highest-flying tech names are getting no help from one of the sector’s usual lifelines amid a fierce selloff that’s showing few signs of slowing.
Plunging U.S. real yields -- which strip out the effects of inflation -- failed to stem a 2.9% fall in Cathie Wood’s ARK Innovation exchange-traded fund (ARKK) Thursday, now in the midst of its worst stretch since 2018. Drops in the likes of Twilio Inc., Zoom Video Communications Inc. and Roku Inc. dragged down the ETF, even as the mega-cap Nasdaq 100 rallied for the first time this week.
The break-apart in riskier tech and real rates is a sea change in a relationship that’s held through much of the past year. With bonds offering a negative rate of return after stripping out inflation, speculative tech and growth have flourished as investors hunt for yield. That the decoupling is happening at a time when a standard explanation for weakness in equities is “concern about inflation” shows the challenges of assigning cause and effect to a market where everything from retail day-traders to options-fomented hedging is acting on prices.
“Even though the bond market is suggesting that tech should be doing better, commodities are what the equity market is listening to and that is causing less of a bid for technology,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management. “Commodities are whispering in the ear of the equity market and saying inflation is coming.”
A surge in everything from copper to corn prices has pushed the Bloomberg Commodity Spot Index to its highest level in almost a decade. Meanwhile, 2-year breakevens touched the highest level since 2008 on Wednesday. The market’s sensitivity to a potential rise in rates was on display this week, with the Nasdaq 100 careening lower after Treasury Secretary Janet Yellen said interest rates may have to rise moderately to keep the economy from overheating -- a point she later walked back.
ARKK has bled about $785 million in outflows over the past six days, according to data compiled by Bloomberg. Amid the carnage, hedge funds sold technology shares for seven straight days, cutting their exposure to the lowest since December, prime broker data compiled by Goldman Sachs Group Inc. show.
