FED’s rates impact on Stock Market
The situation is more complicated with US financial markets where investors should long be prepared for a change in Fed policy. Historically there is no direct correlation between rising interest rates and falling stock prices since such moves to be taken in times of economic stability. Raising interest rates can even be seen as a declaration of confidence in economic growth by the Fed. Growth and corporate profits is slowing this year, while shares already experienced negative adjustment. Because of the nervousness of the markets change in interest rates can not be taken as a positive signal.
The movements of the stock market will largely depend on what is happening in fixed assets and lending. Higher interest rates also mean a higher yield bonds. When growth in the yield on securities decreased their prices. The largest decrease is expected in the longer-term assets, which are generally considered low risk and currently low profitability. Securities with lower credit ratings and higher yields are less sensitive to changes in interest rates.
This brings the greatest danger, as investments in risky assets suddenly could prove risky. Unexpected and unhedged losses on these markets could lead to a domino effect and the full-scale “financial accident,” notes FT. These market processes, however, can be balanced by directing capital to US Treasuries, which is usually at interest rate rise.