Updated: Feb 12, 2022
I have to apologize for the headline. I decided to write something that was New York Times catchy...you know, a headline that really wasn't the real idea behind the article but was designed to make you look. Doesn't have to be true, just draw you in.
The real purpose of this article is to point out the insanity of what the pundits are talking about regarding the stock market...and to put reality in perspective.
The headline should have been "Rising Interest Rates and Sector Returns". Now don't go all glassy eyed and click away quite yet. (But you get the idea why I changed the headline.) Give me a minute to explain and I think you will be happy you did...and you may even make some money.
As I have pointed out in previous posts, interest rates on the 10-year Treasury have risen from approximately 1% to a little over 1.7% in the last year. The reasons are policies, demand and policies. You can see my other posts for more background if interested, but today I will just say that the guys on TV and in the financial media have been telling us that higher rates, usually either accompanied by or caused by inflation, have negative repercussions on the stock market. They opine that higher rates are especially bad for the growth sectors of the economy. They have been on CNBC in their little boxes and on CNN, reported in the NYTs and the WSJ and are all (generally all) telling you something that's not true.
Now history may be a bad guide and it may be different this time but here are the facts and the data that supports them. Simply put, historically, RISING INTEREST RATES DO NOT hurt the stock market.
The concept that higher rates is normally bad for the stock market is an outright mistaken one…
Although far from guaranteed the data is pretty compelling.
Breaking it down even further, the difference in returns for sectors really does not favor value over growth. The difference in returns for Information Technology (growth) and Consumer Staples (value) or Healthcare (value) and Utilities (value) is not only statistically significant IT ALSO should be what the pundits point out. We can discuss the rationale for the dispersion of returns, and that's a conversation that should be had, but dismissing growth is obviously irresponsible.
At Quantum Private Wealth we try to avoid all this nonsense by following our e3 process. Empower, enhance and elevate. This process, while it does not remove market risk, it does make it so that in times where the market is acting in an irrational manner you can stay the course. Avoiding market swings and reacting to ridiculous or outlandish comments and ultimately bad TV advice is ultimately the goal of this process. We beleive setting a plan and sticking with it helps one achieve their goals. If this is of interest, please reach out to discuss how we might help you.
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, Quantum Private Wealth and its employees is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework.
Thanks to our friends at First Trust Portfolios, LP for their help in accumulating this data.