What Happens to Stocks when Interest Rates Rise?

Abstract

Many investors are wary that rising interest rates will negatively impact equity returns. The author examines the validity of these claims and finds that such broad conclusions for the overall equity market are not supported by historical evidence. There is no guarantee that rates will continue to rise. Stocks have had a wide range of returns both positive and negative during times of rising rates. However, some segments of the market, such as high dividend payers, have historically lagged when rates rise and thus do pose potential risks.

TOPICS: Security analysis and valuation, legal/regulatory/public policy, risk management