Do Rate Hikes Always Punish Growth Stocks? Think Again
Historical data doesn’t back up the perception that tighter monetary policy favors value stocks.
Higher interest rates torch the value of future earnings, which can spell trouble for growth stocks.
Photographer: Kevork Djansezian/Getty Images
Last month, the Federal Reserve kicked off a campaign to increase interest rates to bring down the highest inflation the U.S. has experienced since the 1980s. Critics contend the Fed still isn’t doing enough, and the central bank seems to agree. Several high-ranking Fed officials, including Chair Jerome Powell, have said in recent days that interest rates may need to rise faster, and possibly higher, than initially planned.
The bond market has been banking on it for months. The yield on two-year Treasuries usually hugs the federal funds rate, the overnight bank lending rate the Fed uses to move short-term interest rates. But the two-year yield has shot up to 2.3% from near zero last fall, racing 2 percentage points ahead of the fed funds rate in anticipation that the Fed will have to raise rates by at least that much — and soon.