Rates And Stocks

I created this chart on a huge screen, so I encourage you to click on it to see it in more detail. It’s a very simple line chart: the blue line represents the S&P 500 and the black line represents interest rates.

My thesis here is a simple one: a persistent increase in interest rates eventually breaks the back of the stock market. I have circled in red the two instances marking a major stock market reversal. In each of those instances, interest rates continued pushing higher for many months to come, having already risen in prior months.

My view is that the amount of collective debt from the peaks in 2000 and 20007 compared to the present level of debt would be like comparing the Appalachian mountain range to the Himalayas. Rates have already started rising, to the cheers of the Fed, and if indeed inflation finally takes hold (as the Fed has emphatically stressed they desire) and starts to run away, it will crush the stock market under global suffocation of soaring interest expense.

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