Here’s what happens to the market during major periods of rising rates

Investing


The stock market is plunging on rising interest rates worries, but perhaps investors shouldn’t be so concerned.

A stronger-than-expected jobs report and wage number on Friday sent interest rates higher, sparking a sharp 6 percent sell-off by the S&P 500 over two trading sessions. The market is dropping again Thursday.

Traders are concerned the Federal Reserve may reduce its monetary stimulus and increase interest rates more aggressively as the economy continues to strengthen.

Major periods of rising interest rates

Source: FactSet

Using Kensho, a hedge fund analytics tool, CNBC looked at what happens during periods of major increases in interest rates using the 10-year Treasury yield over the last 30 years.

The findings show there were six periods with major rises in interest rates in the last three decades. The market rose big during five of those instances and only fell slightly during the one lagging period.

The S&P 500 rallied 23 percent on average in the time periods.

CNBC also looked at the sectors which climbed the most during the rising interest rate time frames.


The screen showed technology stocks did well, followed by consumer and financial stocks.

Investors are freaking out this month, but higher rates have been good for stocks in the past. Or at the very least, stocks were able to rise alongside higher rates.

Likely because accelerating economic growth was pushing earnings higher at the same time.

Past performance does not always equal future returns and of course it could be different this time.

But in the past, higher rates didn’t equal lower stock returns.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.



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