The Meb Faber Show: Jim Bianco on “The Biggest Economic Event of Our Lifetime”
While investors have been treating the stock market as back to bullish following last year’s drop, a bigger trend may have started. It’s a trend that plays out over decades, not years. And it doesn’t take place in the stock market.
Rather, it’s in the bond market. And it has to do with the trend of interest rates. Since 2020’s historic lows, interest rates have trended higher.
More importantly, they’re higher than at any point during the 2010s. And that jump higher ay not be reflected in the stock market right now.
That could mean a rough few years for stocks, as they adjust to higher rates. Stocks may even compress, where the share price stays about the same, but rising earnings gradually brings valuations down.
However, the real story may still be in the bond market. A trend of rising interest rates may be underway. If so, that’s the first time in 40 years – a lifetime for an investor – for such an environment.
In that case, investors may not want to chase tech stocks. Instead, they’ll likely want to rotate to whatever sector of the market is rallying now. And having a higher proportion in short-term bonds can help grab higher yields along the way.