man on tablet

What Rising Rates Mean for the Stock Market

Interest Rates Tick Upward

Outside of a minor uptick at the end of 2018, interest rates have been historically low for the past few years. Interest rates fell even further when the pandemic hit. For context, the average interest rate on a 30-year fixed-rate mortgage was about 5% ten years ago. A decade before that it was about 7%. Yet this rate has been below 3% for much of the pandemic.

Shorter term government debt yields like the 10-year US Treasury are even lower. In March 2020, the 10-year US Treasury yield hit 0.3%, a record low.

With that said, in recent weeks interest rates have been ticking upward. As a result, bond yields are rising and investors are now worrying about inflation. Some believe that too much fiscal and monetary stimulus will cause the economy to overheat. This could cause inflationary pressure which might cause the value of the dollar to fall.

Stock Market Recovers From Recent Losses

These recent trends—rising bond yields and concerns about inflation—have put downward pressure on the major stock indices over the past several weeks. This is partially because, when bond yields rise, they can become a more attractive investment compared to stocks.

Investors are also concerned that companies that relied on low rates to borrow money might have a harder time paying the interest on their outstanding debt. Mega-cap growth stocks like Apple (AAPL), Amazon (AMZN), Google (GOOGL), and Tesla (TSLA) have felt the most pressure. Their weakness has weighed on the Nasdaq Composite Index in recent trading sessions.

However, major stock averages traded higher yesterday as investors parsed through commentary from Federal Reserve Chairman Jerome Powell, who offered reassuring remarks to equity investors. He said that easy monetary policy is likely to stay in place because employment and inflation are still below the central bank’s goals.

Looking Ahead

Powell said that the central bank is “committed to using our full range of tools to support the economy and to help ensure that the recovery from this difficult period will be as robust as possible.” He also expressed that he does not believe current inflation trends are a threat to the economy.

The Fed changed its approach to inflation last year to include a policy of allowing inflation to average above 2% for a certain period before tightening policy.

While rising rates will certainly be on investors’ radar in light of the new stimulus bill that is working its way through Congress, Powell’s comments eased concerns—at least for the near term. The central bank’s policies are designed to keep interest rates low, which will make borrowing for both companies and consumers more affordable. This is meant to spur economic growth which could benefit people with mortgages and other debt.

The housing market has been an important part of the economy’s health and recovery. For now it appears that the Fed does not want to hamper that.

Things are changing daily within the financial world. Sign up for the SoFi Daily Newsletter to get the latest news updates in your inbox every weekday.

Sign up

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store SoFi Android App, Get it on Google Play

ABOUT SoFi SoFi helps people achieve financial independence to realize their ambitions. Our products for borrowing, saving, spending, investing, and protecting give our more than one million members fast access to tools to get their money right. SoFi membership comes with the key essentials for getting ahead, including career advisors and connection to a thriving community of like-minded, ambitious people. For more information, visit Want an easy and convenient way to manage your financial life? Get the SoFi app. For iOS and Android.

TLS 1.2 Encrypted
Equal Housing Lender