I will compare two stocks. Stock T is a company with one year of earnings 10 years from now expected to be huge but also sort of uncertain. Stock C is a company that will have 5 years of solid earnings and then dies.
Let’s assume the market values both properly. Stock T is more volatile because of the timing and uncertainty of its big earnings in 10 years. Stock C is not very risky at all.
As I have mentioned in risk premium 101 because stock T is more volatile it has a higher risk premium. Also because it is the same as a 10-year zero coupon bond it is impacted strongly by changes in interest rates relative to stock C which is insensitive.
When interest rates rise stock T will underperform stock C. Stock T is also more sensitive to risk premiums increasing for the same reason. The discount rate for equities is a combination of the risk premium and risk-free rates.
In the last few days, this has been shown in the performance of stock T. Tech stock and stock C cyclical stock.
Compounding the move is the idea that tech stock earnings are concentrated well after the reopening and are not sensitive to earnings expectations upgrades while cyclical stocks have most of their earnings in the next five years.