filthy casual
09-18

Think of Fed rate hikes as slamming the brakes on a speeding train—the deceleration causes turbulence, not a smooth ride. Rate hikes intentionally tighten money, creating direct headwinds for equities:

* The "Lag Effect" Trap: Rate hikes take 12 to 18 months to hit corporate balance sheets. Stocks sink early because markets price in the recession and earnings slump expected down the road, long before it shows up in quarterly reports.

* The Death of TINA ("There Is No Alternative"): When risk-free Treasuries and money market funds offer solid 5%+ yields, stocks lose their monopoly on investor capital. Safe cash becomes a direct competitor to volatile equities.

* Discount Rate Math: Stock valuation models discount future earnings against interest rates. As rates rise, the present value of those future profits shrinks instantly, hitting tech and growth stocks hardest.

* "Good News Is Bad News": Strong economic metrics now spook investors because strong data gives the Fed permission to keep squeezing the economy.

Real market relief doesn't arrive while the Fed is tightening—it shows up only when the Fed stops hiking and signals an actual pivot to rate cuts.

Two Rounds of Treasury Buybacks, and Long-End Yields Still Hit a New High?
The Treasury bought 20- to 30-year debt again Wednesday, capped at $6B — second round in two weeks; the first filled only $5.2B. The bid came, yields didn't fall: the 10-year closed at 5.11%, up 15bp and the highest since 2007, as was the 30-year. October Fed hike odds hit 69.7%. Stocks fell: Nasdaq -1.13% to 26,936.04, erasing Tuesday's record; QQQ -0.84% to $741.21; S&P 500 -0.75% to 7,706.03; Dow -0.68% to 51,511.59. Bulls say firm data, not weak demand, is lifting yields; bears say two buybacks and a new high prove the bid can't absorb supply. At what yield do you redo the math on stocks?
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • popzi
    09-18
    popzi
    The terminal value gets smoked first in high-rate regimes. That is why long-duration names get hit before the earnings damage even prints
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