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Strategies & Market Trends : Technical analysis for shorts & longs
SPY 662.72+0.4%4:00 PM EST
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To: Johnny Canuck who wrote (53379)11/16/2020 4:00:32 PM
From: Johnny Canuck1 Recommendation

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A fund manager looking down the road to after the pandemic.

Now sure of timing.

>>>>>>>>>>>>>>

Teal Linde's Top Picks: Equinox Gold, Premium Brands and Ensign Energy
BNN Bloomberg
MARKET OUTLOOK

What would rising interest rates mean for the stock market?

While we believe stocks can generate strong gains in the long term, we also believe investment managers would be prudent to consider factors that may derail upward trajectory in the shorter term. One risk to continued gains in the short-term is the potential for rising interest rates.

Most investors have never experienced anything but declining interest rates over their investing lifetimes and it is difficult to conceive of anything different. But after 39 years of declining rates to levels near zero, perhaps it would be wise to consider the possibility rates could rise.

Could U.S. federal debt levels, which as a percentage of national economic output now exceed those from World War II, be a catalyst for a gradual, long-term move higher in interest rates?

Extremely low interest rates have been very supportive for stocks in recent years. Real bond yields (interest rate minus inflation) are currently negative. This has resulted in money flowing into stocks and substantially raised the price-to-earning multiples investors are willing to pay for stocks. But if real yields were to begin to rise (they have already risen about 0.30 percentage points off their August 2020 lows) it would likely mean a compression in price-to-earnings multiples in the stock market. Improvements in earnings could be offset by lower multiples, which could send the market sideways for the next few years.

This possibility is one of many reasons for the importance of stock selection in coming years. One sector likely to benefit from higher interest rates would be financials as interest rate increases would improve their prospects. Investors should also own companies growing fast enough to outrun the negative effect of rising interest rates.

bnnbloomberg.ca
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