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


 

But, higher rates will kill stocks. Won’t they?
History would indicate that is not necessarily correct. In the 8 years between 1975 and 1982 the Dow Jones Industrials moved from a low of 632.04 to 1043.34. During that same period the rate on the 10-year Treasury jumped from 7.43% to high in 1981 of 15.05% finishing the period at 10.57%. Why this performance? Earnings were growing from $7.71 on the index in 1975 to $13.82, almost 80% over the period. The high interest rates were a result of hyper inflation. However, that curse had a silver lining. Corporations, unlike today, had pricing power.

Anecdotally, I bought a house in 1980 with an 11% adjustable rate mortgage. We (the country and my family) survived it. I should also point out the Dow Jones Industrials,1043.34 at the end of my example, closed Friday November 13, at 29,479.81.


Bottom Line
If this market continues to plow ahead it is likely to draw money out of bonds. Ergo, rates will be going up and it is likely in a Biden administration the Fed (which may be ineffective in this circumstance) will not have the White House bludgeoning them daily to keep rates at zero. The media and pundits will be screaming ‘look out below’. Certainly it may effect the market negatively for a while. We could easily see a 2% or 3% yielding treasury. Obviously this could hurt the high multiple end of the market but for most stocks it will be a welcome sign that things are getting better … the secular bull market continues.


What’s your take?

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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 ...

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