“AT WHAT POINT DO RISING RATES BECOME A HEADWIND FOR U.S. EQUITY MARKETS?”
That’s what one subscriber asked on The Macro Show today to which Hedgeye CEO Keith McCullough replied:
“What happens if interest rates go up and that deflates everything going up right now, especially in the energy patch and related crappy securities like MLPs. It could be a disaster. This is why I won’t give in to the yellow brick road and white picket fence narratives about Trump. It may not manifest.”
To be sure, the election day results have ushered in a wave of investor optimism. Broad U.S. equity indices have risen between 4% and 12% (based on performance since November 7th).
We think a bit of caution is now in order.
Consider 1980 to 1982. President Ronald Reagan had just been elected. The country appeared to be riding high. Then Reagan had to deal with a serious recession. It took stocks down 22% from November 1980 to the August 1982 recession low.
So what should investors do now?
It’s probably best to raise cash. Wait for the economic data to confirm in either direction. There are many questions outstanding about economic growth and, with volatility rising, it’s probably best to get on the sidelines and re-evaluate.
Some additional advice from McCullough: “If you can be flexible here, I think you’re going to make better decisions. Even if you have to change your mind about it in the short term.”