There are plenty of things that can keep investors up at night worrying about what could derail the stock market. Rising interest rates should not be one of them.
I get a ton of mailbag questions these days asking whether the Fed will get too aggressive with hiking rates, eventually killing the eight-year bull market in stocks.
The implication is: When rates go up, stocks must go down.
Everyone’s heard this so often it’s accepted as truth. In fact, not a day goes by when I don’t overhear some talking head on CNBC touting this nonsense.
Don’t believe it, because it’s pure baloney.
Last week, I updated you about where we are right now in the big-picture cycle analysis that Larry Edelson pioneered and passed on to us as his legacy. As he correctly forewarned, all the major economic cycles point in unison: A supercycle convergence of historic proportions.
Besides his ardent study of cycles, Larry was also a keen student of history. And he constantly applied historical analysis to his market forecasts. Correctly identifying historical market patterns, sometimes long forgotten, but destined to repeat.
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The upshot? During turbulent periods like this, markets could behave exactly the opposite of what you would expect. You simply can’t afford to rely on old myths about how the markets should behave.
The single biggest myth gaining traction right now is
about interest rates and stock prices.
Everyone seems to believe that when yields move up, stocks will tumble – but that’s total hogwash – nothing could be further from the truth.
Historically most bull markets in equities occur with rising interest rates, not falling rates. Conversely, most bear markets in stocks happen alongside declining interest rates. It is exactly the opposite of what you hear.
Just look at recent history: The Fed has raised interest rates three times since December 2015, and promises more to come, yet stocks are up nearly 15% since the first rate hike.
Want more proof? Let’s take a look at one of the greatest secular bull markets in history: The 1950s and ’60s! Take a look at the charts below and you’ll see what I mean.
The chart at left shows the Dow (top panel) and Treasury yields (bottom) from 1954 to 1962. Above right shows the Dow and yields from 1960 to 1965.
As you can clearly see, stocks and interest rates rose together, not always in lockstep to be sure, but the upward trend in both stocks and yields over the same period is unmistakable.
Treasury yields rose from less than 2.5% to more than 4% over this entire period. If that happened today, the doom-and-gloomers on CNBC would be pounding the table about an imminent stock market crash.
But historically, when this scenario actually played out in the ’50s and ’60s, the Dow soared 279%; stocks went up, up, and away, together with interest rates.
We are in for five years of chaos in the economy, the markets and in our business and personal lives. As this supercycle courses through the world economy in the months ahead, the investors our governments count on for loans will snap their wallets shut. Even now, investors are reading the handwriting on the wall: Government debt is simply too massive. It can never be repaid. It would be financial suicide for them to continue loaning their money to Brussels, Tokyo or Washington; insane to throw good money after bad. And so, governments — including our own — will simply run out of money. Read more here … – Mike Burnick
Bottom line: Don’t listen to myths in the financial media about higher rates hurting stocks, it’s simply untrue. Think for yourself, do your own homework, and if you analyze the markets from a historical perspective, you’ll see the hard evidence plain as day.
Interest rates are going up for many years to come, and that is the most bullish thing that can happen to stocks, not to mention commodities!
P.S. Stay tuned next week as I dive deeper into the third pillar of Edelson Wave research: Technical Analysis.