Higher Rates Suddenly Fit Bull Case on Stocks

If nothing else, the last two weeks have made us ask a lot of questions about what is good and what is not about the stock market. Undoubtedly, number one among investors in the world was: "How will 4 interest rates affect the US market?"

If we judge the behavior of SP500 and Dow Jones, which rose by more than 4% since the beginning of the week, against a bond yield of 2.90%, the high Fed rates have had a positive impact on the shares.

Looking historically, statistics show that since 1971, the average yield during a raise period is 20% and the maximum drawdown was 4%.

The main reason for strong stock growth in rising interest rates is, in fact, the same and this is strong economic growth. On the one hand, strong growth is the result of the good results of the companies that are reflected in the reports, and hence the investors reflect this growth in the stock price. On the other hand, the Fed as the main responsible for moving the economy in the right direction needs robust growth and economic data to ensure that a step up of the base interest rate will not negatively impact and lead to a recession. In the end, everything remains in the hands of consumers and companies and how they tend to spend and invest.

Source: Bloomberg Pro Terminal

Jr Trader Petar Milanov

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