My forecast is clear: interest rates in the USA will continue to fall next year. And significantly.

Market interest rates, measured by US Treasury bonds with a ten-year maturity, have already fallen significantly – from just under 5% to below 4%. By the way, I predicted this exact scenario in the fall.

This trend will continue to push interest rates down. And what about stocks?

The interest rates on ten-year US Treasury bonds will continue to fall.

Source: stockcharts.com

„Poison for stocks“ – do interest rate hike cycles always end in disaster? Let’s take a closer look at the relationship between interest rates and stocks.

If bond interest rates fall next year, the US Federal Reserve is unlikely to continue raising interest rates. The central bank sets the direction for interest rates. The last interest rate hike in the current cycle was in July 2023. So that should have been the peak – at 5.5% for the US federal funds rate.

Rising interest rates (like the recent increase from 0% to 5.5%) are generally considered bad for stocks. So shouldn’t stocks be falling now as a result of all these interest rate hikes?

Let’s take a look at how the S&P 500 performed after the last interest rate hike in comparable cycles.

The impact of significant interest rate hikes on stocks Here we see a very mixed picture. From 1929 to 1974, a cycle of 15 interest rate hikes actually resulted in significant losses in the US stock market every time.

Six months after the last interest rate hike, losses were often the greatest, and 12 months later, the situation only improved slowly. So here, the impact of significant interest rate hikes is clearly negative.