"Interest Rates Are Going Thru The Ceiling" – The Next “Big Thing” To Worry About

In my humble opinion, INTEREST RATES!
I have not seen or heard much about this topic, mainly because rates have remained so low, running between 60 and 70 basis points over the past couple of months on the 10 year US Treasury note. However, with the news on the vaccine and the spike in the stock market that note hit 98 basis points in yield Tuesday November 10. This is up from 38 bps March 3, when everybody was flocking toward these securities for safety and a recent low August 3, of 51 bps. (10-Year Treasury yield history)

If the news on the vaccine and therapeutic front continues favorable my sense is that appetite for risk will bring more bond sellers into the market putting further upward pressure on yields. There will not be much the Fed can do to stop it. Rates will go up. The media will obsess. Investors will obsess. When will the spike in rates derail the market? The bears will be ecstatic and the market will continue to advance and no one will be able to understand why the market continues to rally in the face of higher rates. This should not cause fear and despair as it will be a sign of a return to a stronger, safer economy but, trust me, it will. The media and the so-called pros that they rely on for learned commentary will make it so.


‘Everybody knows higher rates will kill stocks’

Not so fast … this might be true under certain certain circumstances but not necessarily the current situation, unless you happen to be involved in the high multiple, tech-heavy leadership of the past seven months. You take rates on the ten-year back to nearly 2%, a level that prevailed in December of 2019, and those stocks are going to get hurt. In the meantime, all those cyclical, value and small cap stocks the were destroyed by the fear of a Covid-prolonged economic collapse could really benefit.

The current total market capitalization of all the stocks in the Russell 2000 is about $2.5 trillion. The top 4 market cap stocks in the S&P 500 (AAPL, MSFT, AMZN and GOOGL), just the top 4, have a combined market cap nearly $6 trillion. The S&P 500 index in total has a market capitalization of $23 trillion. If there is a rotation out of large cap growth to small cap and value it would not take too much a shift (plus new money coming into the market) to garner a huge positive change in the Russell.

View single page >> |

Disclaimer: The information presented here represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.