Of course, there are lots of interest rates, but the critical rate that helps determine stock valuations is the yield on the 10-year U.S. Treasury note. That rate spiked in recent days, driving the most recent drawdown in the stock market. Here, we do have some good news. While short-term interest rates are likely to keep rising, as the Fed tightens policy, longer-term rates don’t necessarily follow suit. As growth slows, the likelihood of a recession in that 10-year period rises, and rates can fall. As such, while the Fed is raising rates (and that has hit the markets), once the market sees those rate hikes ending, the 10-year rate will start to drop, and that will likely mark the start of the stock market recovery.
We don’t know when that will be, but we do know what to look for. We don’t know how long or deep this bear market will be, but we do know it will end. And as with every other bear market, including the great financial crisis and the 2020 pandemic, we do know the U.S. economy and markets will adapt and recover.
Take The Long View
This is a scary time. When investors look at their statements, perhaps their risk tolerance is less than they thought. That’s okay, but investors who are concerned about their portfolios should talk with their advisors, who can help them understand why they own what they do. Investing is a long-term project. In the long term, we have seen bear markets before—and recovered nicely.
Keep calm and carry on.
Brad McMillan is the chief investment officer at Commonwealth Financial Network.