Overvalued tech stocks are not the largest market risk

Significance

While markets are vulnerable to a sharper unwinding of bullish bets on the tech sector, comparisons with the 2000 dotcom bubble are misguided: Big Tech firms enjoy a stronger financial position now, and the sector is a winner from both the pandemic and the collapse in bond yields.

Impacts

• The prices VIX-linked futures contracts are trading at imply the US election may be the costliest event ever for traders to hedge against.
• Market measures of US inflation are falling, stoking fears that the recovery will be fragile; the five-year breakeven rate is down to 1.4%.
• US high-yield, ‘junk’ bonds are under the most pressure since March, suggesting that the volatility could presage a disorderly sell-off.