Ever wonder how rising prices (inflation) and borrowing costs (interest rates) affect your investments? This article breaks it down simply. We travel through time, 25 years of history starting with dot-com bubble and ending with post COVID era , exploring how these factors, along with central bank actions, have impacted the stock market in the past. But wait, there’s more! The article also uncovers surprising twists – how investors, companies, and even technology have played a role in keeping the market afloat with attractive valuations. The big takeaway? Even with rising interest rates, a recession might not be guaranteed! We’ll explore why, but remember, investing is complex. This article equips you with the basics to make informed decisions, not financial advice.
Key Facts Covered:
- The S&P 500 has experienced 10 official recessions since its inception in 1957
- Inverted yield curve i.e., short-term treasury rate higher than long-term treasury rates have indicated 6 recessions in the past, all within 2 years
- Both the 2008 and 2020 recessions followed the same pattern – GDP crashed, Imports and exports plummeted, and government spending increased
- While rising rates can hinder borrowing, strong earnings and investor confidence can still propel the market upwards
- When interest rates are low, stocks tend to be more attractive, potentially pushing their valuations (P/E ratios) higher
- The relationship between interest rates and stock market is not always linear and other factors such as corporate earnings, economic growth, and investor sentiment, can also play a role
- The market currently anticipates two rate cuts in 2024, bringing rates down to target range of 4.75%-5.00% (from 5.25%-5.50% currently).
How Evalueserve Can Help?
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Authors
Satyam Kumar
Associate Director, Asset and Wealth Management
Akhilesh Kumar
Manager, Asset and Wealth Management
Pawandeep Singh
Senior Analyst, Asset and Wealth Management
Publication
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