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How does the stock market perform when interest rates rise?

  • Many believe the recent rise in interest rates is a reflection of investors’ expectations for a strong economic recovery, certainly the desired outcome from the COVID-19 pandemic. While this may be a positive sign that we are emerging from the worst of the pandemic, some worry about the collateral damage that may come with rising rates.
  • Pundits will make the case that rising interest rates lead to higher borrowing costs which can exacerbate debt burdens and make it difficult for businesses to grow (i.e. less disposable income because of higher interest payments). The case can also be made that rising yields reflect investor sentiment of faster growth, which could bring forth a concern of increased inflation.
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