Ten-Year Treasury Yield Hits 5%: Why QQQ Could Face More Pressure Than Value ETFs

The 10-year Treasury yield is back near 5%, putting pressure on the valuation premium carried by growth-heavy ETFs such as the Invesco QQQ Trust (NASDAQ:QQQ). The benchmark yield briefly crossed 5% this week before retreating to around 4.95%-4.99%. The level matters because history shows equity returns have weakened when the 10-year Treasury carries a 5-handle. See More: Top Momentum Stocks According to a Substack article by Bespoke Investment Group, highlighted by GuruFocus, on trading days since 1962 when the 10-year Treasury yield carried a 5-handle, the S&P 500 averaged a 0.4% gain over the following three months, with positive returns 56% of the time. Six-month and one-year gains averaged 1.3% and 4.1%, respectively, versus long-term averages of 2.2%, 4.4% and 9.1%. That does not mean stocks must fall. But it raises the question of whether growth-heavy ETFs face greater valuation pressure than value-focused funds if yields remain elevated. QQQ’s rate sensitivity comes into focus QQQ tracks the Nasdaq-100 and has substantial exposure to mega-cap technology and AI-related companies. Nvidia Corp (NASDAQ:NVDA) accounted for 8.34% of the ETF, Apple, Inc (NASDAQ:AAPL) 7.90%, Microsoft Corp (NASDAQ:MSFT) 6% and Micron Technology, Inc (NASDAQ:MU) 4.69%. Higher Treasury yields can weigh on such stocks by increasing the discount rate applied to future earnings and making relatively low-risk bonds more competitive with equities. The valuation gap between stocks and Treasuries is already worth watching. Market data from ChartVault showed the S&P 500’s earnings yield at 3.88% against a 5.01% 10-year Treasury yield as of Sept. 1. VTV offers a different exposure The Vanguard Value ETF (NYSE:VTV) tracks large-cap value stocks rather than the Nasdaq-100’s growth-heavy universe. It held 308 stocks as of July 31, with a P/E ratio of almost 21x. Recent performance also shows the two ETFs can behave differently. Over the three months through Sept. 16, QQQ fell about 2.5%, while VTV gained 1.5%. The key variable now is whether the 10-year yield merely tests 5% or stays there. A sustained higher-rate regime could make valuation discipline increasingly important for growth-heavy ETFs, while the relative performance of value will still depend on earnings, economic growth and sector composition. A 5% Treasury yield is not a sell signal for QQQ. It is, however, a higher hurdle for richly valued growth exposure. Read Also: Mortgage Rates Near 7% Are Testing This 10%-Yield ETF. Is REM’s Income Worth the Rate Risk? Photo: Drozd Irina via Shutterstock