Ready for lift off? How interest rate rises impact stockmarkets

Some investors believe that rising interest rates are bad for equity markets. These infographics, however, show that historically in the year following the initial lift-off for rates equity markets have, on average, performed robustly.

16 December 2015

Investment Communications Team

Investment Communications Team

Rising interest rates: stockmarkets' friend or foe?

It is a general perception that when policymakers embark on a period of monetary tightening equity markets struggle.

Rising interest rates lead to higher costs of borrowing, therefore there is less free cash flowing through the economy, restricting consumer spending and impacting growth, which hits corporate earnings and profitability and is reflected in companies’ share prices.

Whilst that may be true among individual companies it does not appear to have deterred investors in stockmarkets.

The graphs below illustrate that European, US and UK equity markets, on average, historically have all risen in the year after policymakers have begun raising interest rates:

• The UK stockmarket has risen on average 17.9%
• The US stockmarket has risen on average 3.4%
• The European stockmarket has risen on average 11.7%

 

Investors should research their investment thoroughly and consult their financial adviser. Investing for equity income places your original capital at risk.

The historic equity market performance above shows that investments in equities can be volatile.

Their values may fluctuate quite dramatically in response to the results of individual companies, as well as general market conditions.

Please remember that past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Topics:

  • Equities
  • Europe ex UK
  • UK
  • US
  • Interest Rates
  • Investment Communications Team

Important Information: The views and opinions contained herein are those of Schroders’ Investment team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  UK: Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA, is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored. Further information about Schroders can be found at www.schroders.com US: Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of Schroders plc, a SEC registered investment adviser and is registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan providing asset management products and services to clients in Canada. 875 Third Avenue, New York, NY, 10022, (212) 641-3800. www.schroders.com/us