I would like to understand the relation between the stock market and interest rates. It used to be that the stock market was independent of interest rates. When rates increased, the market could rise or fall. When rates fell, the market could rise or fall. Since 2008, however, it seems that the only thing that determines the direction of the market is the trajectory of interest rates. If rates fall, stocks rise. If rates rise, stocks fall. Stocks cannot rise if rates are rising. And they cannot fall if rates are falling.
Why?
Why can't the market ignore the Fed and trade normally? Why don't we have more normal trading days where 30% of stocks rise, 30% of stocks fall, and 40% of stocks don't move?
Can we return to a time where stocks can rise in a rising rates environment? Can we return to a time when stocks can fall in a falling rates environment?
I'm not disappointed that stocks are down YTD. I think most stocks are still overvalued.
But aren't individual stocks supposed to be traded based on investor sentiment and the fundamentals of the underlying business, not just interest rates?
What happens if the so-called "pivot" doesn't come? What if the Fed keeps raising rates by 25, 50, or 75 bps for years? A decade? Can investors learn to live in an environment of permanently high rates and see equity gains in such an environment?
Submitted November 05, 2022 at 12:15AM by Arvedui_Last_King https://ift.tt/Pkbpz3c
