Treasury bonds are like tech stocks... Why 30-year Treasurys are volatile... Tech takes time... What to expect from tech stocks... Tech investors all make this invisible triple bet...
If you don't like long-term bonds, you should hate technology stocks...
This probably sounds absurd... But I (Dan Ferris) promise you, the two are more alike than most investors realize.
After reading today's Digest, you'll understand how. And that will help you see the risk in your current portfolio with fresh eyes.
Let's start by looking at a 30-year U.S. Treasury bond...
If you buy $100,000 worth of these bonds, your principal is $100,000. And right now, these bonds are paying about 5% annual interest.
A U.S. Treasury bond is one of the safest investments in the world. If you buy a 30-year Treasury bond, you can count on the government to pay your promised 5% interest every year... then return your principal in 2056.
But safety doesn't free you from volatility.
Bond prices and yields travel in opposite directions. When yields rise on newly issued bonds, that drives down the prices of old bonds. And when yields fall, bond prices rise.
The following chart shows a rolling 30-year Treasury futures index. As you can see, the chart contains no less than five double-digit declines – in the value of a U.S. government bond!
This volatility of a super-safe asset is due to duration. Three decades is a long time in the life of a human being, so we refer to a 30-year bond as a long-duration asset.
Contrast the longest-term Treasury debt with some of the shortest. If the price of a 30-day Treasury bill drops by more than a few tenths of a percent, prepare for the U.S. to potentially default on its debt. But a 30-year bond can fall 20% in value in a matter of months and it's not the end of the world.
With Treasury bonds, that's because a small change in interest rates can add up to a lot of money over 30 years.
Now let's translate all this to stocks...
Stocks are very long-duration assets. They have no expiration or maturity and can generate returns for decades, even centuries.
Consider a real estate investment trust ("REIT") yielding 5%. If the REIT's payouts hold steady, you'll recoup your entire investment in 20 years. But a good REIT will raise its dividend over time, so you wouldn't have to wait that long. And you're paid in cash every quarter. You don't need to be especially patient before you start seeing a return.
But think about a tech stock...
Many tech companies are unprofitable. And they might keep losing money for years. That means more time before investors get their payoffs.
To understand why... simply remember this about duration: It's how far into the future you have to trust the story to get the payoff.
In other words, tech stocks are sensitive to interest rates for the same reason as that 30-year bond.
Technology is an inherently long-duration undertaking...
Tech innovators experiment, engineer, develop, and test, sometimes for many years, in hopes of one day building something useful to enough real customers that they can make a profit selling it.
Innovators might believe they can achieve a good result fast, but the nature of what they do is to forge headlong into the unknown with a dream and a plan. They're more afraid of not moving forward than they are of cost overruns and project delays.
Many attempts at innovation will fail technically.
Consider Tesla (TSLA), which has been developing fully autonomous self-driving cars for more than a decade. Founder Elon Musk continues to tout his robotaxis as having multitrillion-dollar revenue potential. The reality is that a fleet of roughly 25 vehicles is operating unsupervised in a few well-mapped cities today. Recent reports say the fleet is shrinking, not growing. For whatever reason, the build-out is taking much longer than expected.
If robotaxis are a trillion-dollar business, that trillion lies too far in the future to be valued very highly today. In other words, if you're buying Tesla shares, you shouldn't be paying anything for the robotaxi operation. It's a pure promise right now, not a real business. With Tesla's market cap at $1.6 trillion today, investors aren't heeding that warning.
Tech companies come with a lot of promises. Sure, there are cash-gushing stalwarts like Alphabet (GOOGL) and Microsoft (MSFT) in the tech world, but they're the exceptions, not the rule. And with their massive data-center build-outs, they too are investing heavily in long-duration projects that might never pay off.
It's also true that many of the not-so-stalwart tech companies can produce a successful product yet fail to perform well as businesses.
Consider Peloton Interactive (PTON). It created an exercise bike with a screen hooked up to the Internet. The product works fine. But the business is struggling for survival, and the stock has been a disaster.
Peloton went public in September 2019 at $29 a share, soared more than 470% to $167 in January 2021, and today trades at about $6 a share. That's roughly 96% below its peak and 79% below even its IPO price.
If you argue that Peloton wasn't a disruptive technology stock, I agree, but who cares what you and I think? Peloton touted itself as a tech company, the market treated it like one, and it has behaved like one all along: The payout is still far in the future (if it ever arrives), and the stock was insanely volatile.
I'm not arguing that tech stocks are overvalued and heading for a fall...
My role isn't to make predictions based on current conditions. Rather, I want to describe the inherent nature of different assets... in other words, what is virtually guaranteed to happen if you own a given type of asset.
I could just as easily be talking about junior mining stocks, but most investors already see them as risky. Right now, everybody is buying tech because they think they'll get rich fast. These tech stocks' recent performance hides their volatility.
But there's nothing fast about the way technology creates wealth for investors, no matter how the stock market makes it look sometimes.
Tech is long duration. By definition, true investors must trust the story potentially for decades to get the payoff, if it ever arrives. Anyone else is just speculating on price moves, not investing in the business.
Cathie Wood's infamous ARK Innovation Fund (ARKK) paints a more accurate picture of buzzy tech stocks' performance over time.
Wood touted her fund's "disruptive innovation" stocks as the path to big wealth. No informed investor could hear that without instantly recognizing that it involves a high likelihood of losses.
The fund debuted on October 31, 2014 at about $20 a share. It was down around $15 in February 2016. No big deal there. Then it hit $60 in February 2020, fell to $33 during the COVID crash the following month, then soared more than 370% to February 2021.
From there, it plummeted 81% through December 2022. The fund traded around $80 recently. It's up about 293% since its IPO, compared with a 275% rise in the S&P 500 Index during the same period and a 479% rise in the Nasdaq Composite Index.
Owning Wood's "disruptive innovation" stocks didn't make you a meaningful amount more than owning the S&P 500, and it made you substantially less than owning the Nasdaq Composite Index of more than 3,000 stocks. And you had to ride an 81% drawdown before you'd make not quite 300% in a dozen years.
For most investors, it was much worse. Most of the money in ARKK entered near the top. It took in more than $17 billion between the first quarter of 2020 and the second quarter of 2021.
In other words, virtually nobody earned nearly 300% on ARKK. The overwhelming majority of its investors are likely still nursing big losses. The payoff still lies far ahead in the uncertain future and depends on the success of a hundred speculative tech endeavors.
Understanding the link between duration and risk could have saved ARKK buyers some headaches.
If you think this is all too technical a way to say tech stocks are riskier than the S&P 500, I hear you...
But it's important to illustrate how and why most tech stocks will always behave more like ARKK than a rare breakout winner like Alphabet or Amazon (AMZN).
Tech by its nature is risky, and not just because of any particular market environment.
And I'm fully aware that lots of folks believe this is a time of great innovation and that riding this robust trend is actually a safe way to earn a big return in a short period of time.
Though it may continue to seem that way, it'll never be true...
Tech stocks, no matter how well they perform in the short term, will never escape their true nature as perhaps the longest-duration and riskiest sector in the market.
Yes, I'm suggesting that you can expect something like to ARKK's performance by concentrating your portfolio in today's tech darlings. That includes all those cash-gushing megacap businesses that dominate the S&P 500 and Nasdaq indexes.
This will almost certainly seem like an ill-timed warning for a while...
But I have purposefully chosen this moment to try to explain the inherently risky nature of tech stocks through the lens of duration.
Bank of America's May 2026 fund-manager survey was published 10 days ago. It showed a record surge in fund managers' allocation to equities, "driven by optimism over earnings growth and by the possibility of the Federal Reserve cutting rates."
The expectation of Fed rate cuts is important.
Bond values rise as interest rates fall and fall as interest rates rise.
For a 30-year bond yielding 5%, if rates go to 3%, the bond price rises roughly 38% or so.
It works in reverse, too, and it's worth digging in a little deeper to see exactly how...
For a 30-year bond yielding 5%, each $1 of interest payment you'll receive in year 30 is worth $0.231 today. At 6%, that same payment is worth $0.174 today – about 25% less. At 8%, it's worth $0.099 – about 57% less.
Next, run that same type of math through all 30 years of bond interest payments or through all the earnings companies like Tesla are betting will occur over the next few decades. A jump in interest rates can cause the value of that bond or those businesses to fall by 20%, 30%, or even 50% much faster than you'd ever guess.
When interest rates are rising, the market is slashing the present value of those distant earnings.
You saw it plain as day in 2022, when Amazon and Nvidia (NVDA) both fell roughly 50%. They're two of the most revered cash-gushers in tech. But rates soared, and they plummeted. It was just duration arithmetic playing out in the stock market.
The effect on speculative, cash-burning tech stocks is even worse...
Remember, ARKK fell 81% from its 2021 peak through its 2022 bottom. If you own tech funds, you probably own more ARKK-type stocks than you'll want to amid higher interest rates.
Now, 40% of managers in that same Bank of America survey said inflation is the primary tail risk they're worried about. What if that worry materializes in the next six to 12 months? I certainly believe it could. As I pointed out last week:
The major inflation benchmarks have all remained solidly above the Fed's 2% inflation target since March 2021.
They've also all moved higher over the past two months, with Consumer Price Index inflation at 3.8% in April and Core Personal Consumption Expenditures (the Fed's preferred measure) at 3.2%.
Inflation is always the prime suspect behind big moves up in government bond yields. Yields go up when investors sell bonds because they don't want to lose purchasing power by holding an instrument that pays a fixed level of income.
If inflation does remain higher for longer, interest rates will rise, not fall. That's how the Fed fights inflation. And no matter what the Fed does, it's how markets mitigate inflation risk. And that massive equity bet will age like a snowman in the Sahara.
It's really a triple bet: on tech earnings, inflation, and interest rates. Yet hardly anybody is thinking of it that way.
And it's always like that...
Folks love anything that has performed well recently. And the better it has performed, the more they love it. The Nasdaq is up 76% since the April 8, 2025 "tariff tantrum" bottom and nearly 30% since March 30 of this year.
And now stocks – mostly tech stocks – are all people want to own.
Folks always dive headlong into risky sectors after an insanely great recent performance. It's a terrible strategy with generally terrible results. But it's also human nature, and that isn't going to change.
Few people understand risk. And among those who do, even fewer care.
Tech investors today think they're betting on innovation producing great wealth. And to an extent, they are doing that...
But they're oblivious about the extent to which they're also betting on interest rates and inflation cooperating indefinitely.
That's not a winning bet.
New 52-week highs (as of 5/28/26): Advanced Micro Devices (AMD), Arm Holdings (ARM), Alpha Architect 1-3 Month Box Fund (BOXX), Canadian National Railway (CNI), Datadog (DDOG), iShares MSCI Emerging Markets ex China Fund (EMXC), iShares MSCI South Korea Fund (EWY), Exelixis (EXEL), Hewlett Packard Enterprise (HPE), iShares Convertible Bond Fund (ICVT), Illumina (ILMN), Nucor (NUE), Invesco WilderHill Clean Energy Fund (PBW), Invesco High Yield Equity Dividend Achievers Fund (PEY), ProShares Ultra Technology (ROM), State Street SPDR Portfolio S&P 500 Value Fund (SPYV), ProShares Ultra S&P 500 (SSO), Taiwan Semiconductor Manufacturing (TSM), and Twist Bioscience (TWST).
In today's mailbag, feedback on yesterday's Digest about how SpaceX is getting fast-tracked into Americans' retirement accounts... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"I think this article is missing something. Don't indexes have to size themselves based on free floating shares of each company? If so, the 5% of SpaceX will have way less impact than its $2 trillion valuation. Most likely less than 1% of a Nasdaq-100 fund. Am I wrong on this? Please let me know." – Subscriber Axel S.
Corey McLaughlin comment: The short answer is that you're not wrong about that protocol... But because of more recent rule changes by the indexes, the impact of SpaceX – and other mega-cap IPOs likely to come – will be greater than it might appear at first.
Traditionally, yes, major indexes use free-float-adjusted market capitalization. In plain English, that means they weight companies based on the shares actually available for public trading (the "float"), not the full theoretical valuation.
So, if SpaceX goes public at a nearly $2 trillion valuation but only floats 5% of its shares initially, its starting weight inside something like the Nasdaq 100 will be far smaller. As you said, $2 trillion in valuation does not automatically mean a massive Day 1 weighting in index funds.
But consider a few other nuances on this same subject...
Historically, companies needed at least a 10% public float for standard index treatment.
But under changes to accommodate mega-cap IPOs (like, "you don't need a profit anymore if you're huge," which we discussed yesterday), the Nasdaq also recently removed its float minimum. Companies with small floats can receive weightings above their actual float percentage... in some cases, up to 3 times the prevailing float.
Other indexes are making their own changes. Proposals being discussed or implemented by some would go even further: Companies with less than 20% float could potentially receive index weightings equaling 5 times their actual float percentage.
Put it together and under the most aggressive scenarios, the impact of SpaceX's IPO could translate into $200 billion of "forced" buying across the passive ecosystem, or in the "relentless bid." That's not $2 trillion, but it's not chump change, either.
And, whatever the number, the folks running passive and index funds will need exposure and to proportionally adjust other positions. That means selling pressure for other stocks, including Nvidia, Microsoft, Apple, etc.
Plus, a smaller float cuts both ways...
A smaller float means fewer shares are available. That means the same number of buyers or sellers can trigger larger price moves – in either direction.
As we mentioned yesterday, SpaceX also has a phased "unlock" structure that could let insiders and early investors sell shares sooner than in a traditional IPO. If and when that happens, the public float could expand... which would increase its index weighting...
This is all new territory, so we think it's worth pointing the story out... Again, SpaceX will be part of the Nasdaq 100 after only 15 trading days... It took Tesla three years to get there, and Facebook needed about seven months.
We're glad you wrote in so we could provide more detail. In the end, proceed with the SpaceX IPO at your own risk... Just know that it's going to touch everyone who has money in the market, even if indirectly and even if SpaceX doesn't justify a $2 trillion valuation out of the gate.
Passive investors and index funds will be pulled into SpaceX – and more mega-cap IPOs to come, like Anthropic and OpenAI – whether they "want" to or not... And the impact might be more than it first appears. This is a reminder of why individual stock picking matters.
Good investing,
Dan Ferris
Medford, Oregon
May 29, 2026
