Stay Calm and Informed!

What gives me confidence in a longer-term bull market staying intact is the fact that The Dow, S&P, and Nasdaq all made their highs this year at different times and interest rates are RISING! That historically has signaled further upside. 

Rest assured that volatility will likely remain high through the election week. Do not get too concerned as fundamentals remain strong. Nonetheless, huge whipsaws may become common through the election week.

Now for some conventional wisdom turned on its head.

If anyone should tell you this market is going to collapse because of rising interest rates, you can gently correct them.

Conventional wisdom tells us that rising interest rates are bearish for stocks. That’s supposedly true because stocks and bonds historically compete, with investors choosing one over the other. If rates are high, bonds are more attractive, and the risk is supposedly lower than stocks, so stocks suffer. But like most conventional wisdom, this one is invalidated with facts.

The chart below shows that rising rates have been bullish for stocks while falling rates are bearish. In the chart, the year-over-year rate of change of 10-year Treasury rates is shown as the blue line, and the change in the value of the S&P 500 is the green line. As you can see, both generally trend in the same direction.

Reality:

  • When rates are falling, it means the Federal Reserve is worried about a slowing economy, and stocks should be struggling because of slowing growth. Bad for earnings.
  • When rates are rising, the Fed is worried the economy may be growing too fast. Thus, stocks should be rising since economic strength is expanding rapidly.  Great for earnings.

Right Now:

When the elections are over we should be ready to participate in the strong economy conventional wisdom does not see coming. As we have written, other country’s struggling around the world are sending their money into the US Markets for safety, and that capital inflow is bullish for the US Stock Market now and into the near future.

InterAnalyst has been serving investors globally since 1990. Authoring hundreds financial articles and publications, thousands of trading charts to investors worldwide.

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