Hot CPI Sends Stocks Tumbling as Chips and Banks Lead the Selloff

Equity Duration

Bond duration measures how sensitive a bond's price is to interest rates: the longer the wait for cash flows, the bigger the price move when rates change. Stocks have the same property. A stock's value is the present value of all its future earnings, so a company whose profits are expected far in the future is like a long-duration bond. When the discount rate rises, distant cash flows lose more value than near ones. That is why high-growth companies, especially in AI and software, tend to fall harder than mature, cash-generating firms when rate expectations climb. Their valuation rests on earnings years away. The analogy is imperfect, because earnings growth can offset higher discount rates and stocks do not have fixed payments. But as a rule of thumb, growth stocks are long-duration assets and value stocks are shorter-duration, which is why rate shocks often show up as sector rotation.