Why is the Betashares Nasdaq 100 (ASX: NDQ) ETF share price struggling lately?
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The Betashares Nasdaq 100 ETF (ASX: NDQ) has plateaued in recent weeks, down 4.8% from its all-time August 31 high of $ 34.17.
What is weighing on NDQ ASX?
10-year US Treasury yields hit 4-month highs
Investors have become obsessed with returns, a major factor in the valuation of tech stocks.
Benchmark 10-year US Treasury yields have jumped in recent weeks, from 1.3% at the end of September to 1.62% last Friday.
Bond yields have climbed higher due to higher and more persistent levels of inflation and the expectation that the US Federal Reserve will start raising interest rates in 2022.
The Fed initially described the high levels of inflation as “transient” as the economy experiences higher price cycles from the year 2020 induced by COVID-19.
However, the recent surge in oil prices, rising transportation costs and the impact of supply shortages are causing inflation to rise more persistently in the short term.
This weighed on the performance of NDQ constituents, as higher interest rates make future cash flows from fast-growing tech stocks less attractive in the present.
Market almost certain of a rate hike next year
Fed funds rate futures, which track short-term interest rate expectations, have built in a quarter-point hike by the Fed in November or December of next year, Reuters said.
âThe federal funds market has shown a more than 94% probability of a rate hike by November 2022, fully accounting for this scenario in December of next year,â the report said.
The recent volatility of the NDQ reflects factors such as a return to more cyclical sectors and a revaluation of tech stocks to reflect rising interest rates.
Supply chain issues
The global shortage of semiconductor chips has delayed production of products ranging from cars and cellphones to kitchen appliances.
Semiconductor shortages and supply chain bottlenecks could weigh on near-term revenues for NDQ components such as Microsoft, Amazon, You’re here and Nvidia.