Don't Panic Over Interest: Staying Ahead
NEW YOKKÛÓThe thought, of rising short-term interest rates lends to terrify stock market investors. Actually, almost everything tends to terrify stock market investors these days, so perhaps I should say that the recent rise in short rates seems particularly ominous. It has become an article of faith that, when interest rates rise the stock market falls out of bed.</br></br>The facts are otherwise. The ups and downs of short rates have no specific correlation at all with the ups and downs of the stock market. Last February and early March, for example, saw the prime rate. Treasury bills and the slock market all rising at the same time, In January. however, stocks and short lutes ran in opposite directions.</br></br>It's true that the stock market hates tight money. Hut you donÛªt have to get out your prayer wheel and ÛÏrepeiitÛ! sign each time rates tick up. The broad relationship between short rates and stork prices is as follows: Û¢	Short rates still may he falling when the stock market makes a bottom and turns up, because stocks generally improve before the economy does.</br></br>So although Wall Street may gasp and sputter over a small rise in short rates, investors neednÛªt jump to tilt: conclusion that the business recoveryÛÓand the bull marketÛÓare in imminent danger of shutting down. Eventually. that will happen. But 'Û÷eventually" could mean August or two years from August. Short rates simply do not work as a .stock-market red alert.</br></br>Nothing of course, works for sure, or market peaks and panics would happen overnight. The only thing that keeps markets orderly is a difference of opinion among investors.