FTSE has been rallying with interest rates over 5% and rising. Why are 5% yields on the US 10 year so bad for US stocks?
ask yourself why stocks have rallied 3000 pts int he face of oil to to $75 and earnings growth 1/2 of what it was 2 quarters ago. when earnings growth declerates stocks have in the past discounted the slowing growth but this time no matter what the news they kep skying. when you can answer the above then you'll know why 5% a big deal. THE ANSWER IS ITS ALL EXPECTATIONS. IF EARNINGS EST'S WERE FOR 15% AND THEY COME IN AT 9% THATS BAD. BUT IF EXPECTATIONS ARE 3% AND THEY COME IN AT 9% THATS AWESOME. ITS ALL A GAME
Expectations for the UK also flipped from interest rate cuts to interest rate rises without too much damage although I agree the expectations/actual game comes into play. In reality it's just the excuse for the market to rally then fall, not a valid fundamental reason.
because the people with the largest puchasing interest in the stocks like private equity group and funds have been borrowing money sub base rate so the fact that interest rates have gone up is irrelevant. if that tap is turned off to fund these deals then there will be less of them. in the us you can borrow money in the long end so cheap to finance deals as well but this is now ending. goodbye cheap money its over. it had its day under the greenspan fed and now the pain starts. its a fact of life and cycle we are in that has now turned the other way. cheap money and low interest rates do not last forever.