Ready for lift off? How interest rate rises impact stockmarkets
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.
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