Tackle Today: What Rising Rates Means for the Stock Market | Tackle Trading: The #1 rated trading education platform

Tackle Today: What Rising Rates Means for the Stock Market

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History says it’s not all bad.

Traders,

Rising rates elevate the cost of capital while increasing the discount to future cash flows. Both things certainly don’t seem bullish for stocks. And yet, equities actually have a pretty good track record when the Fed starts raising rates.

Why?

Because of what rising rates imply about the health of the economy.

Historically, the Fed doesn’t raise rates when the economy is on life support. Instead, it does it because the economy is humming along fast, and inflation is heating up. In times like these, corporate profits are usually booming as is the stock market.

Remember, there are myriad variables that impact equity values. But the one that reigns supreme is profits. Plot the public companies’ earnings over time, and you’ll discover an extremely high correlation to the stock markets’ trend.

The stock market should be fine as long as rates don’t rise high enough to kill corporate profits.


Video of the Day: Fundamental Focus: Cash Operating Margins Explained

Coach Greg explains what Cash Operating Margins are and how traders and investors can use this important fundamental concept.


Chart of the Day: Market Performance after First Rate Hike

Chart of the Day: Market Performance after First Rate Hike. Source: LPL Research, FactSet, Federal Reserve.
Source: LPL Research, FactSet, Federal Reserve.

Today’s chart shows previous instances when the Fed started raising interest rates. Though the market may have stumbled initially, it ultimately rose higher and longer before the bull market finally ended. Consider this a reason to avoid getting too pessimistic during the current stock swoon.


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Today’s line up

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Cash Flow Club Replay

If you missed last night’s episode when Coach Mark Justice talked about Defensive Use Of Covered Calls or would like to watch it again, check it out here.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

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