{"id":651,"date":"2022-03-25T09:00:46","date_gmt":"2022-03-25T09:00:46","guid":{"rendered":"https:\/\/advisor.wellington-altus.ca\/towerwealthadvisory\/?p=518"},"modified":"2023-11-28T21:06:14","modified_gmt":"2022-03-25T09:00:46","slug":"a-rising-rate-environment-five-reasons-for-investors-to-keep-perspective-2","status":"publish","type":"post","link":"https:\/\/advisor.wellington-altus.ca\/smokinbulls\/2022\/03\/25\/a-rising-rate-environment-five-reasons-for-investors-to-keep-perspective-2\/","title":{"rendered":"A Rising Rate Environment: Five Reasons for Investors to Keep Perspective"},"content":{"rendered":"
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Five Reasons for Investors to Keep Perspective\u00a0<\/span><\/h2>\n<\/div>\n<\/div>\n
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As we move forward towards a return to \u201cnormal\u201d from the pandemic, the central banks will be raising rates to more \u201cnormal\u201d levels. For many months, the media has been hyping concerns over rising interest rates. As investors, should we be concerned?\u00a0<\/span><\/p>\n

While the highly accommodative central bank policies have helped to support the financial markets to see us through the past two years, here are five reasons why investors should keep perspective in a rising rate environment:\u00a0<\/span><\/p>\n<\/div>\n<\/div>\n

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1. Expectations of interest rate hikes have been built into the markets.\u00a0<\/b>Today, we\u2019ve been given ample warning by the central banks that rates will be rising, so much of this expectation continues to be built into the markets. While we have become accustomed to the forward guidance given by the central banks today, consider that it hasn\u2019t always been this way. In the past, decisions made by central bankers were often a surprise that could rattle the markets. In the 1990s, investors used to guess what the Fed would do based on the size of then-Chair Alan Greenspan\u2019s briefcase!\u00a0The theory: if the Fed was going to change rates, Greenspan would be carrying a lot of documents so his briefcase would be wider.\u00a0<\/span><\/p>\n<\/div>\n<\/div>\n

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2. Even with multiple rate increases, interest rates will still continue to be low.\u00a0<\/b>Even before the central banks implemented these highly accommodative policies, interest rates have been kept at low levels for quite some time. As we learn to manage the pandemic and return to normal, a natural unwinding needs to take place, which includes allowing rates to rise. However, let\u2019s not forget that even with multiple rate increases, interest rates will still continue to be very low by historical levels.<\/p>\n<\/div>\n<\/div>\n

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3. Businesses and consumers are expected to be able to withstand these rate hikes.\u00a0<\/b>Many analysts continue to suggest that central banks can hike rates quite a bit without affecting credit conditions, especially given the excess liquidity in the markets. Many businesses continue to be in good shape financially, with solid balance sheets and excess cash reserves, so defaults on business loans are expected to be low. Household wealth also increased at all income levels during the pandemic, and delinquency levels on consumer loans still remain at record lows, suggesting the potential for resilience as interest rates rise.<\/p>\n<\/div>\n<\/div>\n

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4. Equity markets have performed well in past rising rate environments.\u00a0<\/b>Investing theory suggests that interest rates and stock prices move in opposite directions, as stock prices reflect the present value of future earnings: the higher the interest rate, the less future money is worth today. However, history has shown that markets can perform well during rising rates.\u00a0One market strategist determined that the S&P 500 Index returned five percent in the six months following the first rate hike of past recent cycles, despite initial volatility.\u00a0Other studies support positive equity market performance during rising interest rate environments (chart).\u00a0<\/span><\/p>\n<\/div>\n<\/div>\n

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5. More recent data points to slower economic growth, which may slow the pace of hikes.\u00a0<\/b>Recent economic data has been mixed to start the year, painting a slowing economic picture. With the challenge of slower economic growth, and with emerging uncertainties from the geopolitical situation in Europe, it is likely that central bankers will be cautious in the pace of tightening, which may help to temper potential market volatility and may allow time for financial markets and economies to adjust.<\/p>\n<\/div>\n<\/div>\n

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1. www.money.cnn.com\/1998\/09\/29\/bizbuzz\/briefcase\/; 2. www.wsj.com\/articles\/u-s-households-took-on-1-trillion-in-new-debt-in-2021-11644342925; 3. www. bloomberg.com\/news\/articles\/2022-01-23\/u-s-stocks-historically-deliver-strong-gains-in-fed-hike-cycles; 4. www.ca.finance.yahoo.com\/news\/what-happens-to-the-stock-market-when-interest-rates-rise-115245445.html; www.forbes.com\/sites\/ kristinmckenna\/2022\/01\/24\/how-do-stocks-perform-when-interest-rates-rise\/<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

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The information contained herein has been provided for information purposes only. Graphs, charts and other numbers are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information has been provided by J. Hirasawa & Associates and is drawn from sources believed to be reliable.
\nThe information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual\u2019s objectives and risk tolerance. This does not constitute a recommendation or solicitation to buy or sell securities of any kind. Market conditions may change which may impact the information contained in this document. Wellington-Altus Private Wealth Inc. (WAPW) and the authors do not guarantee the accuracy or completeness of the information contained herein, nor does WAPW, nor the authors, assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances. WAPW is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
\n\u00a9\ufe0f 2023, Wellington-Altus Private Wealth Inc. ALL RIGHTS RESERVED. NO USE OR REPRODUCTION WITHOUT PERMISSION<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Five Reasons for Investors to Keep Perspective\u00a0 As we move forward towards a return to \u201cnormal\u201d from the pandemic, the central banks will be raising rates to more \u201cnormal\u201d levels. For many months, the media has been hyping concerns over rising interest rates. As investors, should we be concerned?\u00a0 While the highly accommodative central bank […]<\/p>\n","protected":false},"author":68,"featured_media":772,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_oasis_is_in_workflow":0,"_oasis_original":0,"_oasis_task_priority":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[27],"tags":[145,146,14,147,148,149],"class_list":["post-651","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles","tag-equity-markets","tag-interest-rate","tag-investment","tag-rate-hikes","tag-stock-market","tag-stock-prices"],"_links":{"self":[{"href":"https:\/\/advisor.wellington-altus.ca\/smokinbulls\/wp-json\/wp\/v2\/posts\/651","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/advisor.wellington-altus.ca\/smokinbulls\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/advisor.wellington-altus.ca\/smokinbulls\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/smokinbulls\/wp-json\/wp\/v2\/users\/68"}],"replies":[{"embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/smokinbulls\/wp-json\/wp\/v2\/comments?post=651"}],"version-history":[{"count":0,"href":"https:\/\/advisor.wellington-altus.ca\/smokinbulls\/wp-json\/wp\/v2\/posts\/651\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/smokinbulls\/wp-json\/wp\/v2\/media\/772"}],"wp:attachment":[{"href":"https:\/\/advisor.wellington-altus.ca\/smokinbulls\/wp-json\/wp\/v2\/media?parent=651"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/smokinbulls\/wp-json\/wp\/v2\/categories?post=651"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/smokinbulls\/wp-json\/wp\/v2\/tags?post=651"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}