The force that could end this market boom is already here…
It’s a “market killer” that has arrived before major crashes in the past. It changes the investment landscape. And that’s why I’ve called it “the one thing that matters in the market.”
Longtime DailyWealth readers probably know what I’m talking about…
Folks have poured money into stocks… because of low interest rates. Low rates mean you can’t earn interest in your bank account – and bonds yield next to nothing, too. So there’s little competition with stocks in a low-rate environment.
Investors have no choice but to take on risk in the stock market. That has driven the incredible stock boom we’ve seen over the past year and a half.
Now, folks are worried that low interest rates won’t be here much longer. They know we tend to see higher rates before a market crash. So all eyes are on the Federal Reserve. Everyone’s wondering when the central bank will start raising interest rates.
Today, I share how this will likely play out… and what it means for your stock investments now.
Higher interest rates are coming. There’s no doubt about it. But to put it simply… we’re not there yet.
The Fed just announced that it will start tapering bond purchases this month. It will take roughly a year to unwind the total purchases, reducing them by $15 billion per month.
The tapering will need to end before rates can rise. Still, higher rates are getting closer and closer…
A majority of Fed members are already signaling that we’ll see rate hikes in 2022. Take a look at this recent headline from CNBC…
We’re less than two months away from 2022. That means the low rates that have helped drive stocks higher for more than a year could be coming to an end.
This isn’t the only sign that higher rates are coming, either. The U.S. 10-year Treasury rate – which is controlled by the markets, not the Fed – has risen since early August. And the one-year Treasury rate is up since bottoming in May.
Higher rates are a true market killer. When rates rise, stocks have competition again. And that competition is important…
Today, no one wants to own bonds at near-zero rates… even if stocks are expensive. But what if you could get a safe 4% yield? What about 5% or 6%? Would you throw some money at that instead of putting more into the markets?
I bet you would. And a lot of other investors would, too. That’s exactly why a rising-rate environment can spell doom for the stock market.
Our time to profit from the Melt Up is shrinking…
We have to understand this – and take it to heart. But the way this plays out isn’t what many would expect.
Tomorrow, I’ll share how it has happened in the past.
Good investing,
— Steve
Strange change at your bank [sponsor]At least 41 major US banks have just made a drastic change to the way money in America works. It could have some major implications for you, your money and your retirement. But it's crucial you understand what's happening, before these changes get applied to your bank account. Here's everything you need to know.
Source: Daily Wealth