Why Tesla, Broadcom and Rivian fell today as Treasury yields shot higher

Treasury yields continued to rise on sticky inflation data, dragging the market down today. Tech and artificial intelligence (AI) stocks carried the bulk of the selloff, then Nasdaq Composite fell almost 2%, more than the other major market indices.

Shares of electric car manufacturers Tesla (TSLA 0.15%) and Rivian Automotive (RIV -4.95%) decreased by 4% and 5% respectively. Meanwhile, shares of artificial intelligence semiconductor company Broadcom (AVGO 0.29%) fell 3.3 per cent

High yields are not going away

With the first full week of the year underway, economic data is back on the calendar. New data today support the belief that inflation will remain stickier than expected and perhaps even persistently, making it difficult for the Federal Reserve to continue cutting interest rates.

The Services Purchasing Managers’ Index, which shows the health of the US service sector, came in at 64.4 in December, up more than 4 points from the previous month and the highest level since January. Meanwhile, the Job Openings and Labor Turnover Survey (JOLTS) also came in higher than expected.

Traders betting on rate cuts now see a rate cut in January as highly unlikely, while 60% of traders think the Fed will also keep interest rates where they are at the agency’s March meeting. That number came in at less than 57% yesterday and just 47% a week ago. The yield on the 10-year US Treasury moved to nearly 4.69%.

In more company-specific news, analysts chime in Bank of America downgraded Tesla from a buy rating to a hold, despite raising their price target from $400 to $490. Analyst John Murphy believes investors have now priced in positive catalysts like the possibility of autonomous vehicles. The share price more than adequately reflects this business, but Tesla still has work to do to make it a reality, Murphy wrote.

However, other analysts are more positive about Tesla. New Street Research Analyst Pierre Ferragu upgraded the company to a buy rating and Stifel analyst Stephen Gengaro reiterated his buy rating and named Tesla one of his favorite stocks in 2025. Both analysts believe Tesla can lower costs, produce more affordable vehicles, stabilize its gross margin and have additional opportunities in the autonomous business.

Look forward to Friday

Most of the sell-off in tech today appears to be related to the macro environment and new data that supports sticky inflation and a strong economy that can keep interest rates high. With the market and most technology stocks trading at sky-high values, it’s no surprise to see investors hitting the sell button. The advantage is that the economic data continues to support a healthy economy. High interest rates supported by an expanding economy are not necessarily bad and can lead to stronger earnings which can continue to support the market.

However, many investors also expected interest rate cuts this year, so shares may be pressured if they do not materialize. Remember that investor sentiment can change quickly and that more economic data is available this week. ADP‘s private sector jobs data is out tomorrow, but the real show will be on Friday when December’s nonfarm payrolls data is released. A weak reading on the jobs report could send interest rates lower, although investors may not react positively if they become worried about a recession.

I’m currently on the sidelines when it comes to highly valued tech and AI stocks like Tesla, Broadcom and Rivian. The huge potential of the AI ​​market may steer investors in a different direction, but stocks with higher valuations are more susceptible to selling off bad news.