LPL Research Market Signals Podcast

Why Higher Rates Aren’t Bad For Stocks

LPL Research

LPL Research Strategists discuss why higher rates historically haven’t been bearish for stocks and don’t think they will be this time either.

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Why Higher Rates Aren’t Bad For Stocks

Rates continue to move higher, as the economy improved, more inflation expectations heat up, and more stimulus is coming. As a result of higher rates, stocks have seen some weakness, with growth stocks taking the majority of the selling. This week, Chief Market Strategist Ryan Detrick and Equity Strategist Jeffrey Buchbinder discuss why higher rates historically haven’t been bearish for stocks and don’t think they will be this time either.

Rising rates are usually bullish for stocks

Historically, the S&P 500 Index has advanced during extended rising rate periods almost 80% of the time and there are some positive signs that stocks may tolerate the current rising rate environment well. The LPL Strategists note that S&P 500 has tended to perform better in rising rate environments when:

  • The starting point for rising rates is low, as it was this time.
  • We are not in an extended period of high inflation, which we are well clear of.
  • Rising rates are accompanied by strong yield curve steepening, which is what we’ve been seeing.
Chart - Higher Rates are Usually Bullish for Stocks

More of the same from value and growth

Growth stocks had another bad week last week, with higher rates the main reason. The LPL Strategists noted that higher yields tend to be a tailwind for financials, which are a very important group. Meanwhile, other cyclical value names like materials, energy, and industrials are all doing better thanks to prospects of a red hot economy later this year. But the strategists aren’t giving up on growth quite yet, as there are still opportunities in the group and this recent weakness could be a nice opportunity.

The Fed holds pat

Federal Reserve Chairman Jerome Powell spoke last week and stated he wasn’t concerned with the higher move in rates, which of course sparked another move higher in rates. With another $1.9 trillion stimulus plan set to be passed this week, more stimulus is indeed on the way. The strategists discuss this, along with the very strong jobs print from last week, suggesting the economy is opening up quickly, as most of the gains came from the hard hit services area.

Tune in now

Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the US and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunesGoogle Podcasts, or Spotify and find us on the LPL Research YouTube channel.

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IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index data is from FactSet.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC. 

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For Public Use — Tracking #: 1-05118816 (03/22)