Wednesday, December 14, 2016

2017 Stock Market Can Do Fine As Long As Rates Don't Spike

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*We compare interest rate levels to stock market returns.

*Even if rates move up in the coming year, the fact that they are so low can help markets especially if growth can hold up or go up.

*If rates were to shoot up without growth then market returns could slow.

We did some comparisons to see how markets do in certain interest rate scenarios. Inflation and fiscal policy could cause rates to rise next year but that doesn't mean stocks necessarily will do poorly. Our findings show that stocks can do pretty well unless of course rates were to spike without growth.
Let's Look At The Numbers
Below we went back through the last 45 years. We took the 10-year yield and compared that to stock market returns.
The 10-year treasury yield is currently at 2.4% as we write this.
If rates can stay below 3% stock market returns can be decent when reviewing recent history. If yields move above 3% there could be a little more volatility. Low rates give investors a reason to pass on low yields to instead invest in growth and capital appreciation.
Higher yields are an investment alternative to avoid some risk and pass on equity investments.

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