Stocks and Rising Interest Rates
Stocks and Rising Interest Rates
Since 1865, the U.S. has gone through 30 economic expansions, not counting what has happened since 2012. A 2013 study by Rob Brown looked at the 10-month period when interest rates rose the most within each of these 30 expansions. The first table below shows total return figures for the S&P for each of these 30 periods (when rates rose the most).
10-Month Period When Rates Rose the Most
S&P 500 Total Return [5/31/1865 thru 7/31/2013]
| Highest 10-Month Periods | All 10-Month Periods |
Median Annualized | 7.9% | 8.9% |
Median, Not Annualized | 7.8% | 8.7% |
% of Time Positive Return | 80 | 72 |
Total | 30 | 1,779 |
12-Month Period When Rates Increased the Most
S&P 500 Total Return [5/31/1865 thru 7/31/2013]
| Highest 12-Month Periods | All 12-Month Periods |
Median Annualized | 11.5% | 12.9% |
Median, Not Annualized | 12.6% | 12.1% |
% of Time Positive Return | 81 | 73 |
Total | 16 | 1,122 |
As might be expected, stock returns are likely to be reduced during periods of rising interest rates. Generally, when rates are increasing the most during an economic expansion it likely means significant economic growth and increased corporate profits. Such rate hikes tend to occur during the middle of economic expansion. Thus, the negative effects of rising interest rates are typically more than offset by favorable growth.
Certain industries carry more debt than other sectors; higher debt costs weigh more heavily on utilities, MLPs, and REITs. At the other end of the spectrum are technology and banking which both tend to benefit from rising rates.