Category Archives: Interest Rate Monitor

On September 26, 2018, the Federal Reserve Bank increased interest rates.

How has this policy of rate increases affected the stock market? Since the first rate increase after the “financial crisis” on December 17, 2015, the Dow Jones Industrial Average has defied the scaremongers who assert that rising rates will crash the market.

The Dow is up +45% since the rate increasing policy began.

How is it possible that the Dow Jones Industrial Average is up so much in spite of eight consecutive rate increases?  Why have the scaremongers been so wrong? Two key articles that we’ve written address this perplexing issue and anticipated much of what we’re seeing in the current rise of the market with rising interest rates.

The first article, published April 20, 2011 titled “The Myth of ‘Inflation Proof’ Stocks” highlighted the performance of the Dow Jones Industrial Average from 1940 to 1966 while the 3-month Treasury increased from 0.01% to as high as 4.59%.  In that period, the DJIA increased more than +900%.

The second article, published September 4, 2014 titled “Utility Stocks and Rising Interest Rates” flipped the script on the scaremongers by contrasting the performance of interest rate sensitive stocks against the backdrop of a rising rate environment.  Like the Dow Jones Industrial Average, the Dow Jones Utility Average increased more than +500% in the period from 1939 to 1966.  As a bonus, we included the earning and stock performance of seven regional utilities from 1949 to 1953.

Below is the 3-month Treasury and the upside resistance levels that we’re watching for a possible pullback from the rising trend. Continue reading →

Last year, we said the following of interest rates:

“When it comes to financial markets, the trend is your friend.  In the case of interest rates, more specifically the 3-month Treasury, the trend is up.”

At the time, the daily 3-month Treasury rate was at 0.98%.  Today, the 3-month Treasury sits at 2.05%, more than double the level from last year.

Continue reading →

In this postings, we will present upside and downside targets for the 3-month Treasury based on the work of Edson Gould.

In all of our postings on interest rates, we have made the claim that the Federal Reserve follows the markets when it comes to setting policy.

Recently there has been a low rumbling that rates might need to be increased faster than expected.  In a USA Today posting on February 19, 2018, it was suggested that faster hikes might be needed.

In a Reuters posting dated February 20, 2018, the Bank of Korea Governor Lee Ju-yeol said that  “If (the Fed moves) faster than expected, it will immediately impact international financial markets and also domestic markets as well, so we’re prepared to respond to such a scenario.”

If you’re wondering why there is any discussion of rapid rate increases then the story is all in the data that we’ve been tracking below.

So what is the pattern to the Federal Reserve’s interest rate increases since December 2015?  Quite laughably, we think we have a clue.  Let’s see how this works with our ability to predict the next increase.