Rising interest rates are bad for the stock market and since we are now at rock bottom, rates can only go up and take the equity market down with it. This well known shibboleth is put to rest in this short video:
The presentation is persuasive and if you’ve been reading this blog for a while, none of the material should be novel. Based on the fact that the Fed follows, rather than sets the interest rate, I argued for rate cuts back in 2007 and throughout 2008: Why Today’s Cut Isn’t Enough and Fed Will Cut Rates Again Before 2008.
As well, Wayne recently did yoeman’s work by crunching the numbers to establish the relationship between interest rates and stock market performance (covering much more than the time frame in the video above): What Do Rising Rates Mean for Equities?.
I know, I know, it seems bonkers to be bullish right now but that’s what the relationship between the bond market and stocks is implying. That’s how previous market cycles have played out. To inoculate yourself, it helps to remember that the bearish case is always more eloquent and intellectually attractive (Is It All a Ponzi Scheme?).
What do you think? Are you positioned for further gains? or do you think this is a major top? or maybe you’re expecting sideways range bound trading? I’d be interested to hear your opinions as I’m regularly reminded how much smarter my readers are (!).
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