Wall Street Surges as Tech Stocks Hit New Highs Amid Bond Yield Concerns

Investment house Psagot noted a surprising surge in US stock markets despite record-high bond yields. The 10-year US Treasury yield reached 5.35% on Wednesday, its highest point since 2002, while the 30-year yield neared 5.7%. Globally, bond yields also hit multi-year highs, with Japan's 10-year yield at its highest since 1996 and France's touching a level not seen since 2002.

Despite these rising yields, the S&P 500 rose 1.2% for the week, marking a 14.1% gain year-to-date. The Nasdaq also saw its fourth consecutive positive week, with a 22% increase so far this year. Psagot explained this divergence by attributing rising yields to high inflation, significant government deficits, and competition from tech giants needing to issue bonds for AI investments. Conversely, stock market gains are primarily driven by technology companies, particularly chipmakers, benefiting from AI investment and showing less sensitivity to yield levels. Chip stocks have seen an 85% increase and now constitute over a third of the Nasdaq 100, though this concentration poses a significant risk.

Strong earnings forecasts from companies like Samsung, which reported a 783% year-over-year operating profit increase for Q3, and TSMC's robust September sales, fueled the rally in chip stocks. Samsung's performance was driven by a shortage of memory chips for AI servers, a shortage Micron predicts will last until 2028. However, reports of OpenAI's annual revenue potentially being lower than previously estimated ($50 billion instead of $70 billion) cast a shadow over some tech and cloud stocks.

In contrast, the Israeli stock market experienced a difficult week. The Tel Aviv 35 index dropped 3.5%, the TA 125 fell 3.4%, and the banking index declined 4.8%. The TA 90 index, representing smaller companies, lost 3.1%, widening its year-to-date negative return to 7.5%, significantly underperforming the TA 35's 12.1% gain. Nextvision's stock plummeted nearly 25% during the week after reports of Fidelity selling a substantial portion of its holdings at a discount.

Looking ahead, the US earnings season is set to begin with major banks like JPMorgan, Goldman Sachs, and Citigroup reporting. Expectations are high, with S&P 500 company earnings projected to grow by 29.6% in Q3. In Israel, the consumer price index for September is expected to show a decrease of 0.3-0.4%. Geopolitical tensions remain, with conflicting statements from former President Trump regarding potential US attacks on Iran and continued Houthi attacks in the Red Sea region.