6 ms·

I think that the biggest blocker to the market hitting ATHs that soon is rising interest rates, given the predictable valuation haircut that high-growth unprofi

I think that the biggest blocker to the market hitting ATHs that soon is rising interest rates, given the predictable valuation haircut that high-growth unprofitable companies take when interest rates rise. Rising interest rates increase the discounting rate on their future cash flows.

ceeplusplus 4y ago
Interest rates have already been priced in for a while. Hence the S&P 500 going up 3% when the Fed announced they were hiking by 50 bp for the foreseeable future. The only way another crash happens is if the Fed is forced to hike by 75bp.
- FollowingTheDao 4y ago
  If interest rates have been priced in for a while why has the market gone down so much in May? Also the Fed has already said that they are going to raise rates much higher than 75bp. And in fact they have to to control inflation. Interest rates should be above eight or 9% right now and it’s not.
  - djbusby 4y ago
    Well, the May thing is just "sell in May and go away". And old broker friend told me that "rule"/"wisdom". Sell to get some cash after the April tax bill and then take a vacation in June/July after the kids are out of school.
  - ceeplusplus 4y ago
    Because the Fed previously announced they were only hiking by 25bp/meeting and they were forced to go to 50bp. Plus there were several big earnings misses.
  - nl 4y ago
    > Interest rates should be above eight or 9% right now and it’s not. Where do people get ideas like this from? It just seems so completely disconnected from any kind of conventional economic policy that it is hard to understand why someone would say it.
    - FollowingTheDao 4y ago
      I don’t know about anyone else but I have a degree in economics. https://en.m.wikipedia.org/wiki/Taylor_rule#The_Taylor_principle https://en.m.wikipedia.org/wiki/Taylor_rule#The_Taylor_princ...
      - xxpor 4y ago
        If the fed did that, we'd be in a complete collapse. Worse than the depression. That's infinitely worse than 8% inflation.
        UncleEntity 4y ago
        Volcker drastically raised rates and we’re still here. I believe my parents had a 17% interest rate on their mortgage back then.
        nl 4y ago
        I lived though that. It was not pleasant. Long-term, high levels of unemployment are a nightmare.
        FollowingTheDao 4y ago
        I take it you weren’t alive in the 1980s? I wonder if you actually think there’s a way out of the mess that’s been created over the last 14 years?
        xxpor 4y ago
        >I take it you weren’t alive in the 1980s? Depends on which side of the life begins at conception/birth debate you're on ;) I took your suggestion as suggesting the fed should bump the rate up to nearly 10% in one go, with no warning, which isn't what they did back then. I also think the artificially induced recession wasn't even necessary. It's more likely that Regulation Q reform is what actually ended that inflationary period.
- hendzen 4y ago
  Not quite. The market is pricing in a certain trajectory of rate hikes - basically another four 50bp increases with terminal rates around 2.5-3%. If inflation doesn’t start coming down that trajectory will change and the market will adjust accordingly.

ceeplusplus 4y ago

Interest rates have already been priced in for a while. Hence the S&P 500 going up 3% when the Fed announced they were hiking by 50 bp for the foreseeable future. The only way another crash happens is if the Fed is forced to hike by 75bp.

FollowingTheDao 4y ago
If interest rates have been priced in for a while why has the market gone down so much in May? Also the Fed has already said that they are going to raise rates much higher than 75bp. And in fact they have to to control inflation. Interest rates should be above eight or 9% right now and it’s not.
- djbusby 4y ago
  Well, the May thing is just "sell in May and go away". And old broker friend told me that "rule"/"wisdom". Sell to get some cash after the April tax bill and then take a vacation in June/July after the kids are out of school.
- ceeplusplus 4y ago
  Because the Fed previously announced they were only hiking by 25bp/meeting and they were forced to go to 50bp. Plus there were several big earnings misses.
- nl 4y ago
  > Interest rates should be above eight or 9% right now and it’s not. Where do people get ideas like this from? It just seems so completely disconnected from any kind of conventional economic policy that it is hard to understand why someone would say it.
  - FollowingTheDao 4y ago
    I don’t know about anyone else but I have a degree in economics. https://en.m.wikipedia.org/wiki/Taylor_rule#The_Taylor_principle https://en.m.wikipedia.org/wiki/Taylor_rule#The_Taylor_princ...
    - xxpor 4y ago
      If the fed did that, we'd be in a complete collapse. Worse than the depression. That's infinitely worse than 8% inflation.
      - UncleEntity 4y ago
        Volcker drastically raised rates and we’re still here. I believe my parents had a 17% interest rate on their mortgage back then.
        nl 4y ago
        I lived though that. It was not pleasant. Long-term, high levels of unemployment are a nightmare.
      - FollowingTheDao 4y ago
        I take it you weren’t alive in the 1980s? I wonder if you actually think there’s a way out of the mess that’s been created over the last 14 years?
        xxpor 4y ago
        >I take it you weren’t alive in the 1980s? Depends on which side of the life begins at conception/birth debate you're on ;) I took your suggestion as suggesting the fed should bump the rate up to nearly 10% in one go, with no warning, which isn't what they did back then. I also think the artificially induced recession wasn't even necessary. It's more likely that Regulation Q reform is what actually ended that inflationary period.
hendzen 4y ago
Not quite. The market is pricing in a certain trajectory of rate hikes - basically another four 50bp increases with terminal rates around 2.5-3%. If inflation doesn’t start coming down that trajectory will change and the market will adjust accordingly.