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Individual Stocks

Interest Rates

What is the threshold interest rate that seems to signal a decline in the broad stock market?

The New York Times experts—some of whom studied the correlations between equity prices and bond yields of U.S. Treasuries over many periods—found that the threshold interest rate that seems to signal a decline in the broad stock market is approximately 6%. One expert believes the reason for this is because equity investors would be quite nervous if the cost of long-term capital equals an economy’s nominal longterm growth rate. Some would argue that if returns on less risky investments such as government bonds are sufficiently high, it would naturally pull investors from higher-risk equity investments.



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