Tech and Bond Volatility

By: Ben Dolan, CFP®

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Given recent volatility, Michael and I have received a lot of questions about tech stocks and fixed income. These are two closely related trends, and it’s important to understand the forces behind them. Here are some key factors to consider:

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• Investor skepticism around AI spending has once again rattled technology stocks. Questions are mounting about whether the hundreds of billions of dollars in investments for AI infrastructure are justified, especially when some companies are reporting negative free cash flow and issuing new shares to fund those investments. This uncertainty has contributed to a broader tech and AI selloff recently.
• Rising oil prices and geopolitical tensions are also adding pressure across markets. Brent crude prices have increased, driven by escalating tensions in the Middle East. Higher oil prices raise additional questions about inflation, adding to overall market uncertainty.
• Technology and AI stocks are sensitive to interest rates, inflation, and Fed actions. The clearest example occurred in 2022 when interest rates rose rapidly, causing the Information Technology sector of the S&P 500 to experience a -28% decline that year. However, once conditions improved, these areas of the market also rebounded quickly. So, it's not unusual to see short-term swings across these sectors when there is interest rate uncertainty.
• Global rate volatility has also increased due to concerns about France's fiscal situation, with its 10-year government bond yield surging to its highest level since 2002. Additionally, the U.S. government's recently-reported $2 trillion deficit for 2026, and the upcoming midterm election, have helped to keep Treasury yields higher.
• As a result of these factors, credit spreads, particularly in high yield bonds, have been widening in recent weeks. However, they remain below historical averages when compared to the tariff-related volatility in 2025, the inflation challenges in 2022, and other periods. When combined with higher Treasury yields, overall yields for lower-rated parts of the bond market have jumped. While this has created challenges in certain parts of the fixed income market, it also means that these bonds are more attractive for long-term investing due to their income potential.

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While short-term volatility can feel unsettling, markets have historically rewarded patient investors who stay focused on their long-term financial goals rather than reacting to individual events or temporary market swings.