The Nasdaq Hits a Record High Even as Bond Yields Stay Near 24-Year Highs: What It Means for Your 401(k) and Your Loans

Stocks and bonds are sending very different signals right now, and both can affect your retirement account, your savings and the cost of borrowing.

U.S. stocks rose on Monday, Oct. 5, and the Nasdaq composite closed at a record high. At the same time, the 10-year Treasury yield stayed above 5.3%, close to its highest level in about 24 years.

It's an unusual mix. High interest rates often weigh on stock prices, yet investors kept buying, especially technology stocks.

What happened Monday

According to the Associated Press:

• The Nasdaq composite rose 1.1% to 27,477.31, a record close.
• The S&P 500 rose 0.7% to about 7,774, close to its own record.
• The Dow Jones Industrial Average rose 0.2% to 51,267.90.
• The 10-year Treasury yield was at 5.31%.

The AP said stocks were helped by "a couple buyout announcements." One of them: industrial software company PTC jumped more than 30% after France's Schneider Electric agreed to buy it in an all-cash deal valued at $22.6 billion, according to TheStreet.

For the year so far, the Nasdaq is up about 18.2% and the S&P 500 about 13.6%, according to the AP.

Why bond yields matter to you

A bond yield is the interest rate investors earn for lending money, in this case to the U.S. government. The 10-year Treasury yield is one of the most important numbers in personal finance, because many loan rates, including fixed mortgage rates, tend to move with it.

On Oct. 1, the 10-year yield touched about 5.34%, its highest level since early 2002, according to Reuters. It has stayed near that level since. Analysts have pointed to several reasons, including the war involving Iran, large federal budget deficits, the Federal Reserve's rate increases and heavy borrowing by companies building AI infrastructure, according to Fox Business.

Investors were also waiting for minutes from the Fed's September meeting, due Wednesday, Oct. 7, for clues about whether more rate hikes are coming.

Why stocks can rise while rates are high

There's no single answer, but a few factors help explain it. Investors have stayed enthusiastic about companies tied to artificial intelligence. On Monday, Nvidia posted a record high and Taiwan Semiconductor Manufacturing touched an all-time high during the day, according to Yahoo Finance. Buyout deals can also lift stocks, since buyers usually pay more than the current share price.

Still, high yields can become a headwind. When safe government bonds pay over 5%, some investors may decide stocks aren't worth the extra risk.

What this means for your wallet

• Your 401(k): If your retirement account holds mostly stock funds, its balance may be near a high point. That can be a good time to check that your mix of stocks and bonds still fits your age and goals. Rebalancing means shifting money back to your target mix.
• Bond funds: When yields rise, the prices of existing bonds fall. That's why bond fund balances can drop when yields climb, even though new bonds pay more interest.
• Borrowing: Higher yields can push up rates on mortgages, car loans and other borrowing. "Higher Treasury yields may be a headwind by increasing borrowing costs for households and business," Edward Jones senior analyst Brian Therien told Fox Business.
• Saving: The upside is that cash can earn more. Therien noted that "high-yield savings accounts, money market funds, CDs and bonds generally offer more attractive yields than they did earlier this year."
• Stay steady: Record highs can tempt people to buy more, and big drops can tempt people to sell. Investing a set amount on a regular schedule may help take emotion out of it.

This article is for education only and is not financial advice. Everyone's situation is different.