The Impact of Rising Rates on the Stock Market


A team of derivatives strategists from Bank of America, led by Benjamin Bowler, shed light on the underlying effects of the surge in long-term rates on the stock market. While the S&P 500 has managed to hold its ground, thanks to the resilience of major tech stocks, there are worrisome signs across other sectors.

Firstly, gold has experienced a decline for six consecutive days, signaling a shift in investor sentiment. Additionally, the real estate market is flirting with a nearly three-year low, and utilities have seen their worst five-day return in 20 years, except for during the global financial crisis and COVID.

However, there is an interesting observation to be made. The big tech stocks are not only propping up the index but also mitigating volatility. This unusual behavior adds another layer of complexity to the current situation.

Looking at the bigger picture, the Federal Reserve’s actions have conditioned investors to be more fearful of upside risks rather than downside risks. Consequently, investors have grown accustomed to macro uncertainty, almost becoming numb to it.

To protect against a potential downturn, the team suggests that S&P index level protection remains a valuable option. This is especially true if the tech sector experiences a correction and “catches down” to other sectors. Interestingly, various S&P 500 put products appear to be inexpensive compared to other options due to the prevailing high interest rates.

In summary, the impact of rising rates on the stock market extends beyond what meets the eye. While tech stocks have buoyed the market, other sectors are experiencing significant challenges. The team emphasizes the importance of considering protective measures and highlights the current value offered by certain S&P 500 put products in this uncertain environment.

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