ClearValue Tax (Uncut) 01-09-2025
the stock market is facing trouble from higher interest rates so here’s what you need to know because I’m guessing that you probably saw this in the head you know you’re seeing this in the headlines and I want to explain to you why and what’s going on so first I’ll start with this interest rates on government that is so important because it causes a chain reaction so basically if interest rates on government debt goes up you know what’s going to happen interest rates on mortgages on auto loans student
loan debt credit card debt business loans those interest rates will go up too if interest rates on government that go down then naturally those interest rates will go down as well okay but today we’re just going to focus on the stock markets okay so let’s just start with this and I’m going to give you an oversimplified example just to make the point crystal clear so let’s just say that interest rates on government debt is 0% so in other words if you buy a treasury bond the government treasury bond they’re going to pay you 0%
interest in that case it’s going to be the same thing with the Banks you know the banks will be offering you a 0% interest rate on your savings accounts or a CD okay all right so I want you to think about that as an investor if government bonds are offering 0% and the banks are offering you 0% then the stock market becomes much more attractive to you because do you want to do you want to buy government bonds that will pay you 0% or do you want to leave your money in the bank and they’re going to
pay you no interest no of course not right so you would be more inclined to invest your money money into the stock market and try to make more than 0% so that makes sense right so naturally lower interest rates are good for the stock market all right now let’s look at the flip side so let’s just say and we’re going to use an exaggerated example again so let’s just say that we’re not very high interest rate environments treasury bonds are offering you 20% Banks we’re talking about savings accounts and CDs they’re
offering you a 20% interest rate so in that situation as an investor just think about you know why would you risk money or more money in the stock market when you could put money in a CD you could earn 20% risk-free so in a higher interest rate environments you’d be more inclined to dial back your money in the stock market or just basically not even invest in the stock markets if interest rates are very high so higher interest rates are bad for the stock markets so basically the key takeaway is that
there’s a competition for your money the stock market the bond market cash and struments they’re competing for your money and you’re going to be most motivated to invest your money where they’re paying you the best so if interest rates on government debts is higher that’s not good for the stock market but that’s besides the other points as I said it’s a chain reaction this is just one point of course higher interest rates you know affects the economy it affects corporate profits and those things with many other things
affects the stock market now the 10year treasury is the most important government debt for you and me because most interest rates are are correlated to this one such as mortgage interest rates it’s just one example so if this goes up mortgage interest rates go up if this goes down mortgage rates go down so this chart is since 2020 and as you can see we’re near an 8mon high so if you look over the past 12 months it’s I mean it’s really shot back up there now a good question is okay so the 10year
yield is around 4.7% but you what does that mean is that good or is that bad so let me answer with just jumping right into this question so the question is at what interest rates does this become a big problem for the stock markets and according to Goldman Sachs the answer is 5% so according to their new 19-page report which is based off of historic data they said that historically bond yields at around 5% is when higher yields become a clear problem for equities so this was from Goldman’s you know their team led by Peter Oppenheimer
their chief Global Equity strategist okay so another good question is what is keeping interest rates on us treasuries so high there are a variety of reasons but I’m going to give you three of them so the first one is higher inflation expectations so investors want to be compensated more with higher interest rates for higher inflation risk so I want to give you a real life example so me personally this is how I see it if the banks are offering to pay me 3% to lock up my money in a CD for years I’m
going to say no way I’m not going to risk that because if inflation comes back at 5% 6% 7% then I’m not going to have my money locked up and earn a lousy 3% and lose to inflation no thanks so the second reason is a more resilient economy so listen the economy is not booming right now however the economy is not cratering yet so this reduces the federal reserve’s urgency to cut interest rates aggressively which leads to higher interest rates and another reason is foreign demand for treasuries has been stalling so I as I
showed you in my last video China is done lending money to the US Japan has been decreasing their treasury Holdings and of course we have trillions more of Supply that’s going to hit the market this year so listen if you want Clues as to what’s going to happen to the stock market just look at the bond market track interest rates on government debt if interest rates on government debt goes up that’s bad for stocks if it goes down that’s good for stocks and my advice is to look at the 10-year yield
that’s going to be the most important one but of course it’s not just interest rates you know interest rates on government debt that affects the stock market there’s there’s plenty of other things but this is a big influence on the stock markets in terms of the Federal Reserve they’ve been cutting rates but now they want to pause the rate Cuts so here are the odds for their next meeting on January 29th this is according to the CME fed watch tool there is a 95.2% chance that they do not cut rates
at their meeting in January and I want to tell you these three important things about the Federal Reserve that are relevant to this conversation so the first thing is that the Federal Reserve has more influence on short-term treasury rates especially the ones with onee or shorter maturities so longer term rates they’re more influenced by inflation expectations economic growth projections and global market conditions but the real reality of the situation this is just talking practically is that if interest rates got too high the
Federal Reserve could always print trillions of dollars and buy up treasuries to lower rates which of course they don’t want to do right now because they haven’t beaten inflation now a very good question is could higher interest rates cause a pullback in the stock markets and the answer is absolutely you know of course it could but I’ll tell you this if the stock market goes down 5% if it goes down 8% the Federal Reserve they’re not going to do anything but if the market goes down a bigger amount let’s just say 20% you
know that they’re going to get involved I they’re going to come running to the rescue they’re going to do lower you know emergency rate Cuts they’re going to do QE and it’s going to be a v-shaped recovery you have to remember in the long run stocks just go up so I’ll tell you this if the stock market goes down do not panic sell honestly the best thing to do would probably be to cost average in just keep on adding stay calm stay cool don’t don’t do anything crazy don’t go all in and don’t leverage you
know don’t borrow money to buy more stocks but just stay calm and cool with a long-term mindset and I do want to say this so I understand I’m fully aware that a lot of people actually want this to happen because they see this as you if this were to happen they would see it as a buying opportunity and I don’t blame them essentially just don’t panic sell and if you can just buy the dip that’s all for today please let me know what you think about the whole situation thank you for the support and I wish you a very nice day take care
