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Key Summary
- **The Paradox of Slowing PCE and Surging Yields**: The US June Personal Consumption Expenditures (PCE) price index slowed to a 3.7% year-on-year increase, but the US 10-year Treasury yield (US10Y) surged to 4.75%, nearing its yearly high.
- **Fed's Hawkish Hold**: At the July FOMC meeting, Federal Reserve Chair Kevin Warsh held the benchmark interest rate steady at 3.50% to 3.75% for the fifth consecutive time, but kept the door open for further tightening, dampening market expectations for a rate decline.
- **Testing the Limits of Nasdaq's Multiple**: With the Nasdaq Index closing at 25,373.85, a risk-free rate exceeding 4.7% raises the discount rate for tech and big tech stocks, strongly restricting multiple expansion.
Market Overview
The June PCE price index released by the US Department of Commerce rose 3.7% year-on-year on a headline basis, and the Core PCE rose 3.3%, meeting market expectations and slowing slightly from May.
Temporary stabilization of oil prices amid geopolitical tensions in the Middle East contributed to the stable inflation data, but it remains significantly above the Fed's long-term target of 2.0%, leaving no room for complacency.
Despite the release of these inflation indicators, the bond market immediately saw a wave of selling, sending the US 10-year Treasury yield soaring to 4.75%.
This was because at the FOMC meeting in late July, the Fed paused rates with three hawkish dissenting votes favoring a hike (Logan, Hammack, Kashkari) rather than a unanimous decision, and Chair Warsh maintained a firm stance that he would not be swayed by temporary slowdowns.
The Nasdaq Index is currently trading near historical highs at 25,373.85 points, but tension is mounting over its ability to maintain its multiple amid rising Treasury yields.
According to Daily Stock's proprietary calculation, the Nasdaq Fear & Greed Index currently stands at 'Neutral (42.5)', recovering slightly from 'Neutral (41.3)' a week ago but falling short of the enthusiasm seen during the 'Greed (63.7)' phase three months ago.
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Financial Analysis
From a macro perspective, comparing the trends of key indicators that determine the Nasdaq multiple reveals that a prolonged high-interest-rate environment is becoming more likely.
The rise in the US 10-year Treasury yield (US10Y) increases the discount rate on future cash flows, adding valuation pressure to tech stocks that are currently deploying massive capital expenditures (CAPEX).
| Key Macro Indicators | Metrics/Values as of 2026-07-31 | Characteristics and Market Impact |
|---|---|---|
| **US 10-Year Treasury Yield (US10Y)** | 4.75% | Re-entering yearly highs, putting pressure on tech multiples due to a rising discount rate |
| **June Headline PCE (YoY)** | 3.7% | Decreased from May (4.1%) but remains above the Fed's 2.0% target |
| **June Core PCE (YoY)** | 3.3% | Slowed by 0.1%p from May (3.4%), persistent downward rigidity in services inflation |
| **US Fed Funds Rate** | 3.50% ~ 3.75% | Paused for the 5th consecutive time, tension rises as 3 hawkish dissenting votes emerge |
| **US Dollar Index (DXY)** | Strong Trend Sustained | Strong dollar trend continues on expectations of prolonged high rates |
Particularly at a time when hyperscalers and artificial intelligence (AI) value chain companies are announcing astronomical CAPEX budgets, a risk-free rate (Treasury yield) exceeding 4.7% is highly burdensome.
This leads to an increase in the weighted average cost of capital (WACC) raised by corporations, raising concerns about slowing down the path to free cash flow (FCF) generation.
Valuation
The valuation of the Nasdaq 100 Index is sitting near the upper end of its historical band when compared to S&P 500 growth stocks overall.
As expectations for an early rate cut below 4.0% fade and 4.75% is accepted as the "new normal," the Nasdaq multiple could be exposed to a de-rating (a decline in the price-to-earnings ratio) scenario.
Generally, for every 10 basis point rise in the 10-year Treasury yield, growth-oriented Nasdaq multiples theoretically face correction pressure of around 1.5% to 2.0%.
With Nasdaq's Forward P/E multiple currently sitting above its historical average of 24 to 25 times, the yield breaking past 4.7% raises the hurdle for justifying these valuations even higher.
The high USD/KRW exchange rate, reaching 1,446.00 KRW, is also a factor that increases the entry cost for Korean domestic investors into the Nasdaq.
As US Treasury yields continue to hover at elevated levels and draw in global capital, some evaluate that the real multiple of the Nasdaq Index, when adjusted for exchange rate effects, has entered a further overvalued territory in Korean Won terms.
Expert & Institutional Analysis
According to foreign press reports, global investment bank PNC Wealth Management commented, "The decline in the June PCE price index by -0.1% month-on-month is positive, but it may be a temporary distortion caused by falling energy prices." Therefore, they analyzed that the Fed is highly likely to maintain its hawkish stance rather than abruptly cutting rates at the September FOMC meeting.
Market probability analysis based on the CME FedWatch also shows a strengthened trend toward a rate hike or maintaining high interest rates in September compared to before.
Experts observe that with as many as three hawkish dissenting votes within the Fed, the tight monetary stance will likely be prolonged if any emerging inflation concerns are confirmed.
Investment bank Jefferies warned, "While the Nasdaq stabilizing at the 25,000 level is supported by the earnings visibility of big tech, if bond yields lock in at the 4.7% range, the yield gap between the expected return on equities and the risk-free yield of bonds will narrow to a minimum, which could slow down the inflow of passive funds."
Risk Factors
- **Oil Price Rebounds Due to Geopolitical Risks**: Despite temporary diplomatic mediation efforts among the US, Japan, and the Middle East, tensions in the Strait of Hormuz are rising again, causing West Texas Intermediate (WTI) crude prices to fluctuate. This threatens to trigger a secondary spike in future PCE inflation.
- **Delayed AI Monetization in the Implementation Phase**: Big tech companies are pouring astronomical amounts of money into CAPEX, but if actual revenue contribution at the end-consumer level is delayed, an FCF shock could materialize in this high-interest-rate environment.
- **Strengthening Hawkish Tone Within the Fed**: As Fed officials, including Chair Kevin Warsh, declare that achieving the 'last mile' of inflation is highly challenging, there is a risk that rate cut expectations could be pushed back significantly into next year and beyond.
Investment Perspective Summary
The decline in the US June PCE indicator still contains unstable conditions to fully prove a structural, long-term slowdown in inflation.
The phenomenon of the US 10-year Treasury yield hitting a new yearly high of 4.75% despite stable inflation data shows that the market has begun to price in prolonged high interest rates into asset valuations.
Although the Nasdaq Index is recording a symbolic figure of 25,373.85, it is highly likely to transition into an earnings-driven market where stock prices are determined by actual earnings per share (EPS) growth rather than multiple expansion (rising P/E ratios).
Therefore, a selective approach focusing on high-quality big tech companies with strong cash flows and financial health robust enough to withstand high interest rates seems valid.
Frequently Asked Questions (FAQ)
Q1. Why did Treasury yields rise even though June PCE inflation slowed down?
A1. Despite a slight drop in headline inflation, hawkish concerns were raised within the Fed, with three members strongly advocating for a rate hike. Additionally, oil price instability driven by renewed Middle East tensions stimulated the bond market's long-term inflation expectations.
Q2. When can we expect the US benchmark interest rate to be cut from the 3.50% to 3.75% range?
A2. Following the Fed's pause in July, the market is focusing on the outcome of the September FOMC. However, because Fed Chair Kevin Warsh emphasized a strong labor market and the likelihood of sustained high rates, the timing for a cut is increasingly likely to be delayed.
Q3. What is the relationship between the Nasdaq multiple and the US 10-year Treasury yield?
A3. The 10-year Treasury yield acts as the risk-free discount rate for the stock market. When yields rise to the 4.75% level, the present value of Nasdaq companies—whose valuations are heavily based on future growth—is discounted, putting pressure on their multiples.
Q4. How do a strong dollar and the USD/KRW exchange rate of 1,446.00 KRW affect technology stock investments?
A4. A strong dollar can negatively impact earnings by reducing the translated value of US big tech's overseas revenues. On the other hand, for domestic Korean investors, buying Nasdaq stocks becomes more expensive due to exchange rates, though the Won-denominated valuation of existing US assets is hedged.
Q5. What does the current Nasdaq Fear & Greed Index being 'Neutral (42.5)' mean?
A5. It indicates that while the market has escaped extreme fear (30 a month ago), investors are taking a wait-and-see approach due to rate pressures, awaiting corporate earnings validation, unlike the 'Greed (63.7)' state from three months ago.