Tackle Today: What Rising Rates Means for the Stock Market
January 21, 2022
≈ 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
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.
Options Theory Blog
Timing When to Sell Covered Calls
Today’s video discusses the pros and cons of legging into covered calls and how to build out profit target orders for the trade.
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.
Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Legal Disclaimer
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.
