Gary Black, Managing Director of The Future Fund LLC, expressed his concerns about the impact of rising long-term interest rates on certain stocks.
High P/E stocks Like Tesla, Nvidia, Palantir Hit by Yields
Black pointed out that Tesla Inc. (NASDAQ:TSLA), NVIDIA Corporation (NASDAQ:NVDA) and Palantir Technologies Inc. (NASDAQ:PLTR) could be the most affected by the rise in 10-year Treasury yields to 4.29%.
He explained that higher price-to-earnings stocks are most vulnerable when long-term treasuries rise because a significant percentage of their value is “in the tail” which, when discounted at a higher rate, disproportionately impacts their values.
Tesla trades at a P/E ratio of 193.51, Palantir at a strikingly high 520.77, while Nvidia sits comparatively lower at 49.55.
Black questioned why long-term interest rates are climbing even as traders price in a 90% chance of the Federal Reserve cutting short-term rates at its September 16-17 meeting.
He attributed the rise to investor concerns that long-term inflation expectations remain elevated, fueled by higher tariffs, increased deficit spending, and the prospect of a more dovish Fed following President Donald Trump's appointment of a new Fed chair after Jerome Powell's term ends in May 2026.
In the Tuesday pre-market trading session, shares of Palantir, Nvidia and Tesla declined 3.77%, 2.78%, and 2.34%, respectively.
See Also: Trump’s Immigration Crackdown Leaves US Short 1.2 Million Workers, Inflation Fears Mount
Economists Warn Markets May Underestimate Fed risks
Gary Black’s views resonate with some economists who have cautioned that the financial markets might not be fully considering the potential risks of Trump’s pressure on the Federal Reserve. These risks include a rise in inflation and a loss of faith in U.S. government debt. If these risks materialize, it could further contribute to the upward trend in long-term interest rates.
At the same time, on Monday, Bloomberg’s Chief U.S. Economist, Anna Wong, warned that the markets might be overestimating the certainty of a rate cut. Wong’s data indicated that while a cut might be on the horizon, the market was pricing in more certainty than the economic data supported. This could explain the rise in long-term interest rates, as highlighted by Black.
Bonds Price Fed Cuts, But CIO Warns Long-Term Outlook Uncertain
Notably, the bond market is aggressively pricing in a Federal Reserve easing cycle that would see two interest rate cuts by the end of this year, pushing the Fed Funds Rate below 4%.
However, Charlie Bilello, Creative Planning’s Chief Investment Officer, has urged caution, stating that when it comes to long-term predictions, Fed officials “don’t know any better than my seven-year-old.”
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
