2. Rising Interest Rates.  The yield on the 2-year just tipped 3%, which is the highest level since the financial crisis.  

OS3

Source CNBC.com

 

This has several ramifications:

  • This is the end of TINA (There is no alternative.) The 3% rate is now higher than the dividend yield of the S&P 500 making bonds a legitimate alternative to stocks.  The era when everyone from pension funds to retirees to just plain ol’ investors looking for a balanced portfolio being forced in stocks is probably coming to an end. Even a small reallocation out of stocks and into bonds would have a large negative impact on share prices.
  • This is the end free money.  The ZIRP (zero interest rate policy) allowed a variety of less than optimal economic and behavioral decisions.  

In the past, companies that still carried large debt on their balance sheets and were probably headed towards bankruptcy, were able to stay refinance and stay afloat.  That won’t be the case going forward.


About the Author: Steve Smith


Steve has more than 30 years of investment experience with an expertise in options trading. He’s written for TheStreet.com, Minyanville and currently for Option Sensei. Learn more about Steve’s background, along with links to his most recent articles. More...