Stock Market Needs Apple, Big Tech to Keep Rising. That Might Be

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If you’re looking for a reason why the stock market has bottomed, look no further than Big Tech. And if you’re looking for a reason why it might start sliding again, look no further than…Big Tech.

During the

S&P 500’s
5.2% drop from its Sept. 2 high to its trough on Oct. 4,

Apple

(ticker: AAPL),

Microsoft

(MSFT),

Facebook

(FB),

Amazon.com

(AMZN), and

Alphabet

(GOOGL) fell an average of 8.6%. That made it almost impossible for the S&P 500 to climb, because those stocks account for about a fifth of the benchmark index. They’ve all behaved better since then, gaining 4.1%, on average. That’s helped the S&P do something that it hadn’t done in nearly three weeks—close above its 50-day moving average, a sign that the overall market could be ready to head higher once again.

There was no news—at least no good news—to lift Big Tech in the past 1½ weeks. Apple was on the receiving end of reports that it had cut iPhone production because of part shortages. Microsoft finally decided to cut bait and pull LinkedIn from China. Amazon was accused of copying popular products in India. And Facebook was, well, Facebook. Only Alphabet, which J.P. Morgan recently described as “the most liked” of the big internet stocks, emerged without the whiff of bad PR.

But these days, a big move in bond yields can outweigh rumors, innuendo, and scuttlebutt. The 10-year Treasury’s yield surged from 1.29% on Sept. to 1.611% on Oct. 11, a rise that coincided with Big Tech’s decline. And the stocks’ rally from their lows this past week coincided with the 10-year yield slipping back to 1.519%. It stood at 1.576% early Friday afternoon.

The connection between yields and tech shares is no illusion. The correlation between the S&P 500 Technology Sector index’s performance, relative to that of the S&P 500, on the one hand, and the 10-year yield on the other has averaged -0.69 this year, and hit -0.78 for the 126 days ended Sept. 30. (A correlation of -1 means that two variables move in perfect opposition.)

“As a result of this recent trend, any uptick in yields seems to be a default negative for tech stocks and brings immediate worries of a selloff among investors,”…