Tags: S&P | Sam Stovall | Stocks | Interest Rates

S&P's Sam Stovall: Stay in Stocks if Interest Rates Rise

By    |   Tuesday, 25 March 2014 01:25 PM

Fears that rising interest rates will kill the bull market are mostly unfounded, according to historic data from Sam Stovall, chief equity strategist at S&P Capital IQ.

Stovall’s conclusion is that the performance of the S&P 500 index of stocks is actually positive when the 10-year Treasury note is on the rise.

In fact, commodities, stocks and real estate investment trusts all provided positive monthly returns on average during times when the 10-year note yield was rising, according to data since the end of 1976. The S&P 500 rose 0.9 percent per month during that time.

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“Commodities, stocks and REITs are natural inflation hedges,” Stovall told USA Today. “Higher rates are (also) usually a sign of improved economic conditions.”

Stovall said the S&P 500 does not usually start to suffer median monthly losses until the 10-year note rises above 6 percent. However, he conceded that may not be the case with the current bull market.

"This time around stock prices may not wait until the 10-year note hits 6 percent, since the climb started from such a low level," Stovall said. Also, the faster rates rise, the more potential for stocks to react to the downside, he concluded.

Stovall told USA Today that cyclical stocks fare best when rates are rising, including techs, energy and materials.

He said the losers in rising rate environments tend to be rate-sensitive stocks such as telecom services, financials and utilities.

A CNBC.com contributor, Scott Hanson, senior partner at financial planning firm Hanson McClain Partners, said investors have been spoiled over the past three decades by enjoying an environment where interest rates have gradually fallen on a consistent basis. But Hanson said more wariness is advisable now.

“In fact, there's no reason why the next couple of decades couldn't be a complete reversal of what's transpired over the previous 30 years,” Hanson wrote.

He advised investors to abandon bond funds, shorten the maturity of bonds in their portfolio, and consider alternative assets such as stocks, real estate, commodities and cash.

Investor sentiment on gold turned bearish last week after Fed Chair Janet Yelled suggested the central bank may end its massive stimulus program in the fall, and start raising rates six months later, Reuters reported.

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Fears that rising interest rates will kill the bull market are mostly unfounded, according to historic data from Sam Stovall, chief equity strategist at S&P Capital IQ.
S&P,Sam Stovall,Stocks,Interest Rates
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2014-25-25
Tuesday, 25 March 2014 01:25 PM
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