Growth ETFs Face Pressure as 10-Year Treasury Yield Hits 5%

The 10-year Treasury yield has returned to near 5%, putting pressure on growth-heavy ETFs like QQQ. According to history, when the 10-year Treasury carries a 5-handle, equity returns have weakened. A Substack article by Bespoke Investment Group notes that since 1962, trading days with a 5-handle saw the S&P 500 average a 0.4% gain over the following three months, with positive returns 56% of the time. However, stocks are not guaranteed to fall.

QQQ tracks the Nasdaq-100 and has significant exposure to mega-cap technology and AI-related companies like Nvidia Corp (NVDA), Apple, Inc (AAPL), Microsoft Corp (MSFT), and Micron Technology, Inc (MU). Higher Treasury yields can weigh on these stocks by increasing the discount rate applied to future earnings and making relatively low-risk bonds more competitive with equities.

The valuation gap between stocks and Treasuries is already worth watching. Market data from ChartVault showed the S&P 500's earnings yield at 3.88% against a 5.01% 10-year Treasury yield as of Sept. 1. In contrast, the Vanguard Value ETF (VTV) tracks large-cap value stocks rather than the Nasdaq-100's growth-heavy universe.