Recent history shows that U.S. equity ETFs and interest rates can actually rise together.
“Conventional wisdom tells us that rising interest rates are anathema to stocks. In recent weeks, the mere suggestion that the Federal Reserve might begin to taper, or reduce, its purchases of long-term Treasury and mortgage securities has been enough to roil the equity markets in anticipation,” S&P Dow Jones Indices said in a recent report.
However, during the multi-decade rally in U.S. Treasury bonds, there have been instances when interest rates and stocks rose at the same time.
“With interest rates at historically low levels, investors might reasonably assume that it’s not a matter of if but a question of when rates will increase. Hence stock market volatility seems to spike with every suggestion of an imminent Federal Reserve action,” according to the report.
Yet there are instances when rates and stock prices can both be driven by the same set of exogenous economic variables.