#500 Higher? Rates, Earnings, and Markets


Today, we want to talk about a topic that has been the reason for the recent market volatility, which is higher interest rates. With the 10-year yield pushing 1.4%, we wanted to do some research into how rising rates have historically impacted the markets. In this video, we share a chart that shows this historical data going back to 1990. We looked at seven time periods of when rates were rising and the impacts that it had on the market. During these time periods, the S&P 500 was up all seven times. As always, there are no guarantees that history will repeat itself. One thing we do know is that the rising rates could impact certain sectors like housing and real estate. Keep in mind that even though it could cause higher volatility, that doesn’t necessarily mean the market will be down. The worry behind rising rates and how it will impact the market is due to the belief that there will be an outflow of equities into fixed income now that there’s better return potential with higher rates. This is something that we will be watching carefully over the next couple of weeks and months as rates are expected to climb higher, the economy reopens, and more stimulus is passed out.


The negative impact of higher rates could be limited if earnings can grow at a faster pace so that markets will remain cheap, relative to the opposite in which would be fixed-income investments. Earnings in the fourth quarter actually came in, as we have talked about previously, much better than expected. Going into January it was expected that in the fourth quarter of 2020, the S&P 500 earnings would be negative 10.3%. As it stands now, it’s looking like earnings would actually grow by 3.7%. This surprise to the upside, if continued into the first quarter, could make the negative impact of high rates reduced by the fact that the market is getting cheaper from companies just doing better. If these companies’ earnings continue to improve at a pace faster than interest rates go up, the market should remain cheap on a relative basis, and remain strong. We have been in a stimulus-driven stock market over the last year with a lot of stimulus from the Federal Reserve and Congress. The handoff to a regular functioning economy driven by earnings and GDP growth will hopefully be happening sooner than later so that we can have a long and sustainable growth pattern in the markets, even with or without higher interest rates.


On Friday, the S&P 500 closed at 3,906 which pushes the resistance level to 3,970 and the support level to 3,800. This is a case where the fundamental and technical analysis is complementing each other. Retail sales went up 5.3% in the month of January. Expectations projected a 1.2% increase, which is a large gap from what it actually was. We want to look at that from a moving day average on the technical side. In this case, we looked at the short term and intermediate-term to see if the markets have already priced this in or if, when earnings come out in the future, it’s going to change the dynamic of the market going forward.



Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here

Adam Vansant, AIF®
Associate Vice President
Wealth Consultant
Email Adam Vansant here


Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.

Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

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