Join the NASDAQ Community today and get free, instant access to portfolios, stock ratings, real-time alerts, and more! Interest rates have been in a freefall for the better part of the past two decades. Moreover, the yield on the year U. Moreover, after the stock market bottomed in February as a result of the Great Recession, stock market investors have enjoyed a strong bull market that is now almost halfway into its eighth year running.

Interestingly, as it relates to the thesis of this article, the stock market had one of its best performances in in spite of the year Treasury note rising from 1. To be clear, in direct conflict with conventional wisdom, both the stock market and interest rates rose dramatically in Conventional wisdom has historically suggested that there exists an inverse relationship between interest rates and stock valuations.

Why stock market investors should cheer Fed rate hikes, not fear them - MarketWatch

The logic goes something like this. When interest rates fall, fixed income investments become less competitive because of their lower yields, and therefore, stocks become more attractive as a result.

Conversely, when interest rates rise, fixed income investments become more competitive because of their higher yields, and therefore, stocks become less attractive as a result. Personally, IAAAve always considered this argument to be rational, even logical and sound.

It seems to make good sense, because prudent and logically thinking investors should always be asking a rational question before investing in a stock. Could I get a safer and better return if I invested in something else?

What Happens When the Fed Hikes Interest Rates? - TheStreet

Since the year Treasury note is considered one of the safest investments of all, it makes further sense to compare your return expectations on a stock with the theoretically risk-free return of the year Treasury note. In Wall Street parlance this is often referred to as the AAArisk premium,AAA also known as the AAAequity risk premium.

AAA Since investing in a stock involves greater risk, you should logically expect to earn a higher rate of return when investing in it. In other words, it is only rational to expect a higher rate of return that 2oo8 stock market crash you for the risk you are taking.

Consequently, fixed income truly does become more competitive when interest rates are higher. As logical as this is, however, it is only truly relevant when both markets are behaving within normal ranges.

In economics the qualifying Latin term is AAAceteris paribus,AAA which loosely translates as all other things what happens to stock market when interest rates rise equal or remaining the same. Market capitalization nigerian stock exchange, the real world is often not so accommodating.

All things do not remain equal or the same. Therefore, other exogenous variables or factors can AAA and will AAA often come into play. As a result, the logical model between interest rates and stock values described above. GuruFocus has detected 3 Warning Sign with AAPL. Click here to check it out. AAPL Year Financial Data The intrinsic value of AAPL Peter Lynch Chart of AAPL Warning! GuruFocus has detected 9 Warning Signs with PG.

PG Year Financial Data The intrinsic value of PG Peter Lynch Chart of PG. This article first appeared on GuruFocus. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Part 1 July 21, Introduction Interest rates have been in a freefall for the better part of the past two decades. Note of portfolio AAAAAA petrole bagli This article appears in: This is the cheapest company in the Buffett-Munger model portfolio Are CEOs Buying? GuruFocus Stock Picks, Portfolios.

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