Prices have stayed in the same range of plus-or-minus ten points for more than a week. During this same period, news has focused on the Fed and the statements of some of its regional bank presidents. Obviously, there is a tug-of-war going on; not just about what to do about the open market purchases that have lowered interest rates but also who will head the Fed next.
At the same time we have seen prices pause, stepping back from the strong bull market of recent weeks. Many different reasons can explain this change of pace, but one not to be neglected is the impact of interest rates on asset values. As discussed before, this linkage means that rising interest rates translate to falling asset prices – or that the inverse of interest rates and stock prices move in the same direction.
Today’s diagram reveals the recent parallel paths of the S&P500 and the value of the Ten Year Treasury Bond of ten days ago. While these changes are not exactly step-to-step, the trend of falling bond values matches the fall-off in S&P500 increases.
Investors now must factor in the possible changes in Fed policy as well as the other, usual dynamic business and political influences that determine asset values.
DJIA -.04 percent
NASDAQ .27 percent
S&P500 -.12 percent
