Will Stocks Go Down if Interest Rates Go Up?
Posted on: 09/27/2016
By Vern Sumnicht, MBA, CFP, CEO and Founder of iSectors.
Currently, the ten-year Treasury bond interest rates are about 1.62% (September 2016). Many investors are concerned that when the Federal Reserve stops printing money, interest rates will go higher and their stock portfolios will go lower.
Fortunately, there is some historical precedent that might provide some insight into how the stock market might do in a rising interest rate environment.
Back in the 1950s, much like today, the Federal Reserve was printing money and using it to buy Treasury bonds in an effort to keep interest rates artificially low.
As the Fed began to “taper off” on printing new money, interest rates started to rise. Interest rates ran up from 2.5% in 1955 to almost 6% in 1968 (see the graph below).
What happened to the stock market during this period of rising interest rates? The stock market soared (see graph below) this was one of the best historical periods the stock market ever experienced.
History teaches that the last time interest rates on the ten-year Treasury bonds went up from 2.5% to 6%, the stock market went up 300%.
Vern Sumnicht has over 25 years of experience as a successful financial planner and has been recognized for four consecutive years by “Worth Magazine” as one of the Nation’s Top Wealth Advisors.
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