do not take too literally the notion that “long duration” stocks will get hammered by rising bond yields a representative recent article by michael janda argued that healthcare and tech stocks with high priceearnings ratios are especially threatened by higher interest rates because these stocks rely on more earnings in the future they are seen as long duration stocks” explains a strategist cited in the article “and so they are more vulnerable to an increase in the bond yield used to discount those earnings” “long duration” is a term borrowed from the fixedincome world rising interest rates produce a much smaller price drop on a bond that is scheduled to pay current interest and redeem its principal within one year than on a 30year zerocoupon bond so much for financial theory what happens in practice to answer that question i studied returns during the recent sharp rise in interest rates in february the yield on 10year treasurys increased by 37 basis points 1 basis point  1100 of a percentage point over that span the standard  poor’s 500 stock index posted a total return of 276 what about those long duration stocks which are supposedly in greatest jeopardy in the present environment of rising interest rates to create a test sample i began with a list published by barron’s of 78 sp 500 stocks that pay no dividends among those stocks 10 were priced at 15 or more times sales clearly these shares’ values derive largely from fardistant earnings all 10 stocks are in the healthcare or tech sector—the categories the abovementioned article considered most threatened by rising interest rates this “highflier” sample did not fall as financial theory and many pundits suggest it should have when interest rates rose in fact an equally weighted average of the 10 more than doubled the sp 500’s return 600 to 276 an outlier twitter at 5250 skewed the average but even without it the group’s return was positive at 087 and 6 of the 10 stocks were up results were not as good for a “super highflier” sample that i also created this group consisted of the 10 stocks in the russell 3000 with the highest pricesales ratios topping the list was tg therapeutics with less than 1 million in sales in 2021 and currently trading at a remarkable 36500 times sales according to bloomberg these stocks for which the distant future very definitely constitutes the basis of present valuations produced an average return of 1119 excluding outlier workhorse at 5288 the average stock was still in the red at 656 even within this beleaguered group however three stocks delivered positive returns in february realworld investors are not literally calculating discounted cash flows every day on earnings that they expect to materialize many years down the road if that were true simple math would have cut the price of every single stock in my “highflier” and “super highflier” samples in response to february’s interest rate surge instead nearly half of the issues nine out of 20 went up the recent uptick in interest rates moderated the prevailing tina there is no alternative mentality rising bond yields made it more palatable for investors to preserve a modicum of balance in their portfolios by devoting a portion to fixed income if that meant selling some of their stocks they were likely to focus on those that had risen the most since the march 23 2020 low and now seemed the most overextended long duration is a concept much in vogue at present due to the vulnerability of a certain class of stocks that enjoyed a phenomenal run over the past year the market is too complex however to be explained by any single formula investors who rigidly adhere to one mode of analysis even as market conditions change will get tripped up sooner or later