Rising interest rates are good for the stock market!

September 22, 2014, 2 Comments

 

Fed Chair Janice Yellen noted in her speech last week that she will delay raising rates, but expects to act more aggressively when the Fed does begin to raise them – which some economists believe will be late 2015.  Contrary to what you may believe, rising rates are actually bullish for the stock market. Sam Stovall of Standard & Poors says that the S&P 500 rises 2.6% on average in the six months following the first Fed rate hike, and 6.2% higher over the following 12 months. Remember, rising rates usually mean either a strong economy or rising inflation. Obviously, rising inflation is not an issue on either side of the border in North America, and the strong US dollar is hurting commodities – which tend to influence inflation  (see the commodity cycle I wrote about last week: here).  So Yellen, by noting that she will eventually raise rates (albeit delayed) in her speech last week, is suggesting that the economy is doing just fine, thankyou very much. The perfect scenario for stock investing!

 

Take a look at the 3-month t-bill rate chart below vs. S&P 500 performance. Note how during periods of flat or rising yields, the S&P 500 (lower graph) gets rampantly bullish. The two charts suggest that markets will rise for as long as t-bill rates rise. This is good news for the future – and it continues to support my thesis of a mega-bull market over the coming years. I have, and will continue to note, that if I’m right about the continuation of a big-picture bull market, we should be using pullbacks as buying opportunities. Thus, any selloffs over the geo-political noise out there should be taken advantage of. Yellen will make sure that the stock market will continue to create a positive wealth effect to support the economy over the coming years.

RATES VS S&P 500

Upcoming events with Keith Richards

BNN MarketCall Tonight: Tuesday September 30, 6:00pm (Phone in with your questions on technical analysis for Keith during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to [email protected]

Brantford Public Library: Thursday October 9th, 2014. 7:00PM. Technical analysis concepts from the book Sideways are discussed – come out and join the discussion!

Toronto MoneyShow: Metro Convention Ctr. Thursday October 16, 2014. 5:30PM.

 

2 Comments

  • Keith:
    You make a compelling case for a longer term bull but does this include all good companies or do some get left behind? Wondering specifically about the pipelines, infrastructure, etc. that pay good dividends.

    Reply
    • All I can say is that we are long the pipes and infrastructure–have been for 2 years–they are pulling back currently due to a vastly overbought move, but the big picture is fantastic for them–good longer termed hold if you believe in the bull market thesis.

      Reply

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