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Where is the Stock Market Volatility?
A Wealth of Common Sense • • business
Key Points:
- The current stock market dynamic, where bond yields spike but the VIX (volatility index) declines, is unusual compared to historical patterns, but not unprecedented.
- Traditionally, rising interest rates often coincide with strong economic growth, which can support stock market gains despite higher discount rates lowering present values.
- Inflation plays a more critical role than interest rates alone in influencing stock market performance; high inflation combined with rising rates in 2022 led to a significant market downturn.
- Strong earnings growth and robust economic indicators like the AI investment boom and improving labor market are currently supporting stock prices despite rising yields.
- If interest rates continue to rise, fixed income investments offering attractive returns could lead investors to reallocate from stocks, potentially increasing equity market volatility in the future.
