Rates, Gold and the Markets' History On the Topic

Published on June 13, 2018 @ 7:54am

The DOW still hasn't been able to move "convincingly" above our previously published target of 25,386, and it comes as Fed Chair Jerome Powell is scheduled to raise rates a quarter point today at 2:00 PM EST.

Coincidence? I don't think so. As a matter of fact, the benchmark index hasn't been able to break convincingly above that level all week. This also comes as the NASDAQ Composite and the S&P 500 have moved ever so close to our near-term targets of 7,800 and 2,830 respectively.

Fundamentally, we still don't see any interest rates concerns on a long-term basis, despite all of the financial media's rhetoric on the topic. Why? Because the truth is even if the Fed were to get a little more aggressive on the interest rate front, rates will still remain down around historical lows for quite some time. However, it would be a great reason for the markets to blame a technical sell-off on. Meaning, the markets are in a position - purely from a technical perspective - to pull back soon.

We've shown all of you on several occasions long-term rates have been in an extremely consistent long-term downtrend dating all the way back to the mid-90's. Provided here is that same monthly chart we've focused on for years, and as you can see, it clearly doesn't appear rates are going to be a concern for equities anytime soon. It doesn't mean something else couldn't surface, but it does mean if stocks slip at any point going forward, it's not going to be because of rates.

Why? When you look at this monthly chart of the 30-year treasury yield below, and you consider what stocks have done ever since the mid-90's, there's clearly an argument stocks can withstand much higher interest rate levels.

As you can see in the same time period on this monthly chart of the DOW below, we had the Internet Boom back in the late 90's, we had a big bull market from the bottom of 2001 until 2007, and we obviously have had the historical bull run from 2009 until now - all while rates were at much higher levels.

The bottom line is the Fed and rates make for great news, but rates are not going to be the reason stocks selloff anytime soon. As a matter of opinion, we're strongly convinced that would be the last reason why stocks would selloff at any point over the next few years.

These results are based on simulated performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown.