Why Rising Rates Alone Won't Kill This Bull Market
The Fed Model flashed bearish, but history says rate spikes rarely derail bull runs on their own.
Every time yields climb, the doomsayers crawl out of the woodwork. The Fed Model — a valuation framework comparing stock earnings yields to Treasury yields — has officially turned bearish. Traders are sweating. You probably shouldn't be, at least not for that reason alone.
Here's the blunt truth: if rising rates were a reliable bull-market killer, we'd have seen far more bear markets than we actually have. Rates have spiked before. Stocks have shrugged it off before. The relationship between bond yields and equity performance is messier than any single model admits.
Read more Warsh vs. Bessent: Fed Independence Under Fire on Rates →
The Fed Model gets a lot of airtime because it's simple. When the earnings yield on stocks drops below the yield you can grab risk-free on Treasuries, the model says equities look expensive. Logical, sure. But markets aren't logic problems — they're confidence games. Momentum, earnings growth, and investor psychology routinely override what a spreadsheet says should happen.
That doesn't mean you ignore rates completely. A sustained, aggressive rate environment can eventually squeeze corporate margins, slow borrowing, and pressure multiples. The keyword is *eventually*. Traders who bailed the moment the Fed Model turned red in past cycles left serious money on the table waiting for a crash that kept getting delayed.
The smarter move? Watch the model as one signal among many, not a fire alarm. Rate context matters — where yields are going, how fast, and what earnings are doing simultaneously. Don't let one bearish reading short-circuit a broader thesis. Continue reading at MarketWatch.com
