Weekend Reading: How Much Do Interest Rates Matter to the Stock Market?

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading interest rates and stock market Weekend reading interest rates and stock market
Weekend Reading

While current interest rate levels sit around 2.5 percent, with inflation sticking around, the Fed could continue raising rates to as high as four or five percent. Will this be disastrous for markets?


What the past tells us: While from a financial theory perspective, it might feel inevitable that higher interest rates mean more market volatility, as Ben Carlson says, “The stock market doesn’t always make sense.” During the 1960s, interest rates nearly doubled, yet the S&P 500 yielded a 7.7 percent annual return. In the 70s, interest rates continued to trend upward, entering double-digit levels, but throughout this time, inflation hovering at 7.1 percent could’ve been a bigger culprit to poor market output.

The complexity of volatility: It’s important to remember not one variable is to blame in times of market volatility. However, Carlson states, “If I had to rank them in terms of importance, inflation would get more first place votes than interest rates.” Ultimately, you cannot determine what the market will do next based on an isolated number of factors. And in the same light, you cannot make predictions around what happened in the past, given the dramatic shift in factors over time.