Interest Rate Levels Don't Dictate Stock Returns

There is no shortage of plausible-sounding financial theories—and many persist even despite repeated debunking. A popular one rearing its head again is that higher interest rates for cash and bonds mean stocks will fall out of favor. With 3-month, cash-equivalent Treasury bill yields over 2%—broadly matching inflation—and 10-year note yields making seven-year highs at 3.2%, the thinking goes these seemingly “risk-free” rates are attractive enough to lure folks out of stocks and end the bull. However, history shows this thesis has quite a few holes.