Interest Rates and Stock Prices: A Market Re-evaluation

In the first eight months of 2026, as global tensions play out in markets, interest rates have taken center stage for three reasons - long-term US treasury rates have hit 20-year highs, concerns about an economic recession have resurfaced and a new Fed Chair (Kevin Warsh) in conjunction with a vocal secretary of the treasury (Scott Bessent) have added uncertainty to the mix. In this session, I look at the slow and steady climb in US treasury rates in 2026, and put current rates in context, by looking at treasury rates since 1954, as well as rises in rates in government bonds in other currencies. I also look at the ripple effects from higher rates on corporate borrowing rates and bond prices, and at equities, where the "higher rate" effects are complicated by the fact that business cash flows are also affected by higher rates. I close with an examination of US equities, which have been resilient in the face of higher interest rates, and attribute the resilience to rising earnings. In closing, the future direction of rates will be determined less by central banks and more by what happens to inflation in the coming months. 1. US treasury rates, default spreads and stock returns in 2026: 2. Intrinsic and Actual Treasury Rates from 1954- 2026: