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.
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.
Important information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This article is intended to be for information purposes only and it 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. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.