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Explore: Rising Interest Rates & the Market

Rising Interest Rates & the Market

Interest

Today’s relatively sharp market sell-off is generating a lot of discussion around the impact of rising interest rates on financial markets. Although there are legitimate concerns that the Federal Reserve’s interest rate increases could reduce demand for relatively riskier asset classes like stocks and slow the economy more than expected, it is our view that these concerns are outweighed by other, more positive factors. Our outlook is rooted in the continuing underlying corporate and economic strength domestically, as well as a longer-term contextual view of why interest rates are rising in the first place.

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What Has the Fed Been Doing in the Shadows?

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On the surface, many investors and market observers feel that the Fed just recently began to tighten monetary policy with a rate hike in December of last year. However, by looking at the Wu-Xia shadow fed funds rate1, the tightening cycle has been underway for quite a bit longer – since mid-2014, in fact.

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Do Economic Expansions Grow Tired With Time?

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With the market swoon to start the year, many investors wondered if we were finally due for a sustained slowdown in the economy or even a recession. After all, since 1926, recessions have happened once every five years on average and it has been over six-and-a-half years since the last one ended.

Well, positive economic growth has continued and the capital markets have actually made a sharp recovery since mid-February. So, does this make a recession even likelier now as more time has passed?

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