Inverse relationship
stocks and interest rates have an inverse relationship due to the discount rate and Capital Asset Pricing Model (CAPM). The Fed sets the floor or the risk free rate which is what the Fed will lend at to the Banks. that rate has been 0-25bps for a long time which has the effect of inflating riskier assets like stocks/equities. As the risk free rate increases the discount rate at which equities/stocks are valued and as such will have a negative effect of equities’ valuations. the higher rates go, the further stocks will fall. i predict a much larger rate increase than 25bps and believe the safest haven will be gold, silver, oil and other hard commodities as well as low P/E stocks with a high dividend yield that is not in danger of being cut / defensible. stocks like PBR and BHP will do well along with gold and silver miners.
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RDK79 : Yet the market ends up doing what wants and goes up and down due to many other factors, sone being totally unknown, regardless of the rate is low or not. A graph showing the rate movement over the last 35 years (since Black Monday Oct ‘87) overlapped with DOW /NASDAQ Market levelS would be interesting. Guessing you’d see short term knee jerk reaction after rate adjustments, then back to realistic data movements. We have to remember why the rates got so low and why they realistically can’t stay low forever.