In the movie “Back to the Future” (director, Robert Zemeckis), Dr. Emmett Brown warns:
“No! Marty! We’ve already agreed that having information about the future can be extremely dangerous. Even if your intentions are good, it can backfire drastically!”
“Money is the key to end all your woes
Your ups, your downs, your highs and your lows”, chant Run DMC in “It’s Like That”
Very long run American marketplace history shows that substantially climbing United States interest rates in important benchmarks such as the US Treasury 10 year note have preceded noteworthy peaks and led to bear trends in key stock marketplace signposts such as the Dow Jones Industrial Average and the S+P 500. Sometimes a yield climb, after preceding a stock marketplace top, then retreated; yet in some cases yields marched even higher after the equity peak.
Thus the probable current and long-term prospects for generally sustained higher US and worldwide interest rates probably will tend to weaken the S+P 500 and other stock marketplaces (and other “search for yield” asset classes). Although rising yields and some US dollar strength will encourage S+P 500 retreats, it will be probably will be difficult for the S+P 500 to breach its October 2022 depth by much in the absence of a sustained global recession.
The Fed probably will tolerate a brief recession to defeat the evil of excessive inflation, but it (and of course Wall Street and Main Street and politicians) likely would hate a severe recession. In today’s international and intertwined economy, further substantial price falls (beneath October 2022 lows) in the stock and corporate debt price arenas (and other search for yield interest rate territories), and even greater weakness than has thus far appeared in home prices, plus a “too strong” US dollar, are a recipe for a fairly severe recession. Hence the Fed’s late 2022 rhetorical murmurings aimed to stabilize marketplaces (and encourage consumer and business confidence and spending) and avoid a substantial GDP drop. So after several 75 basis point jumps, Fed leaders hinted that going forward they might not keep raising rates as dramatically. Early February 2022’s 25 basis point boost appears small in comparison.
Sustained rising US (and global) interest rate yields led to the S+P 500’s majestic and joyful pinnacle at 4819 on 1/4/22. UST 10 year yields began rising in early March 2020, accelerating upward following 8/4/21’s 1.13 percent trough as American (and worldwide) consumer price inflation became very significant. Following the S+P 500’s heavenly January 2022 summit (focus also on the descending pattern of lower interim highs after that peak), it collapsed 27.5 percent to 10/13/22’s gloomy 3492 low, which rested merely 2.9 percent above 2/19/20’s 3394 pre-coronavirus pandemic peak.
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Balancing Acts- Financial Marketplace Trends (3-5-23)