The Nasdaq reached a new record high on October 5, 2026, and extended those gains on October 6. This was surprising because U.S. Treasury yields remained at very elevated levels, something that would normally put pressure on technology and growth stocks.
So, why were investors still buying tech stocks?
The answer is that several positive factors came together at the same time. Strong demand for artificial intelligence (AI), gains in Nvidia and Microsoft, weaker U.S. jobs data and lower oil prices helped investors look past the pressure from high bond yields.
However, there is also an important warning for investors: a lot of good news may already be priced into technology stocks.
Nvidia and Microsoft Lead the Nasdaq Higher
One of the biggest reasons for the Nasdaq's record performance was the strength of major technology companies.
On October 5, Nvidia rose around 1.6% while Microsoft gained about 1.5%. Other large technology names, including Meta and Tesla, also moved higher.
This matters because the Nasdaq is heavily influenced by large technology and growth companies. When companies such as Nvidia and Microsoft rise strongly, they can have a significant impact on the entire index.
Nvidia remains at the centre of the AI investment boom. Investors continue to expect enormous demand for AI chips and data centre infrastructure.
Microsoft is also benefiting from the AI trend because of its investments in cloud computing and artificial intelligence.
For investors, the important point is simple: strong performance from a handful of very large technology companies can push the Nasdaq higher even when other parts of the market are less impressive.
Weaker Jobs Data Reduced Rate-Hike Expectations
Another important factor was the latest U.S. jobs data.
The September employment report showed that job growth had slowed more than expected. This caused investors to reduce their expectations for another Federal Reserve interest-rate hike in October. According to CME FedWatch data reported on October 5, the probability of an October hike fell to around 24%, from 70% a week earlier.
Why does this matter for technology stocks?
Higher interest rates generally make growth stocks less attractive because investors place a lower value on future earnings when borrowing costs and discount rates rise.
Therefore, when investors believe the Federal Reserve may not raise rates as aggressively, technology stocks can become more attractive.
In other words, even though Treasury yields are high, expectations for the Fed's next move became less hawkish.
But Aren't Treasury Yields Still Very High?
Yes! And this is what makes the rally unusual.
The 10-year Treasury yield climbed as high as around 5.35% on October 5, its highest level since 2002. The 30-year Treasury yield also remained above 5.6%.
Normally, this would be a problem for high-growth technology companies.
However, investors are currently looking at more than just today's interest rates. They are also asking:
Can companies such as Nvidia and Microsoft continue producing very strong earnings growth?
If the answer is yes, investors may be willing to pay higher prices for these stocks even while bond yields remain elevated.
There was also some relief on October 6 as Treasury yields moved lower from their recent highs, providing another boost to stocks.
Falling Oil Prices Also Helped
Oil prices provided another positive signal for investors.
Brent crude fell below $100 per barrel as Middle Eastern crude exports increased and the G7 announced measures to increase oil supplies. On October 6, Brent was trading around $98.58.
Lower oil prices can be positive for the stock market because expensive energy can increase inflation and raise concerns that the Federal Reserve will need to keep interest rates higher for longer.
So, falling oil prices gave investors one less reason to worry about inflation.
The combination was therefore supportive for stocks:
- weaker jobs data → lower rate-hike expectations
- lower oil prices → less inflation pressure
- strong AI expectations → continued demand for technology stocks
The Big Risk: Is Too Much AI Optimism Already Priced In?
This is perhaps the most important point for investors.
The Nasdaq's record high does not mean that technology stocks are risk-free.
Investors already have very high expectations for AI-related companies. Analysts were expecting S&P 500 earnings to increase by more than 30% year over year in the third quarter, with AI-related companies playing a major role.
That creates a potential problem.
If Nvidia, Microsoft and other technology companies report excellent results, but their forecasts are not good enough to beat already high expectations, their share prices could still fall.
This is because stock prices reflect expectations about the future, not just what has already happened.
For example, if investors expect Nvidia to deliver exceptional growth and the company reports only "very strong" growth, the stock could fall if investors were expecting something even better.
What Should Investors Watch?
The Nasdaq's record high shows that investors are currently willing to look beyond elevated Treasury yields because they believe strong earnings and AI growth can continue.
But this could change quickly.
Investors should watch three things closely:
1. Technology earnings: Especially Nvidia, Microsoft and other major AI-related companies.
2. Federal Reserve expectations: Any change in expectations for interest-rate hikes or cuts could affect technology valuations.
3. Treasury yields: If long-term yields continue climbing sharply, they could eventually put more pressure on expensive growth stocks.
Takeaway
The Nasdaq reached record highs in early October because investors were focusing more on strong AI growth, powerful technology companies and reduced expectations for an immediate Fed rate hike than on the negative impact of high Treasury yields.
Nvidia and Microsoft were major drivers, while weaker jobs data and falling oil prices provided additional support.
But investors should not assume the rally can continue indefinitely.
When expectations are already extremely high, even good news may not be enough to push stock prices higher.
That means the next major test for the Nasdaq could come from upcoming technology earnings. If companies deliver results that exceed already high AI expectations, the rally could continue. If they disappoint, high valuations and elevated Treasury yields could make the pullback much sharper.