Published:
Investors are making too big a deal over whether interest rates will be cut at the December meeting of the Federal Reserve’s interest-rate-setting committee. Interest rates have surprisingly little ability to forecast the stock market’s direction.
To show this, I analyzed the 10-year Treasury
BX:TMUBMUSD10Y yield (or equivalent) since 1871; for each month since, I calculated the difference between it and the S&P 500’s SPX earnings yield (the inverse of its P/E). To the extent interest rates have an impact on the stock market, we’d expect the S&P 500 to perform worse when the 10-year yield is above the market’s earnings yield — and vice versa. But that isn’t what the data show.
