Stansberry Research

High Interest Rates Are Here to Stay

Greg Diamond, CMTStansberry Digest

Editor's note: The storm clouds still haven't passed...

The Federal Reserve has been keeping its foot on the gas with interest-rate hikes in an effort to temper today's multidecade-high inflation. But with the central bank still nowhere near reaching its 2% target rate, the Fed aims to keep boosting rates until it sees a significant decline in inflation...

That's why Ten Stock Trader editor Greg Diamond believes it's crucial for investors to account for the Fed's inflation-fighting strategy when putting together an investment plan for 2023.

In today's Masters Series, originally from the September 19, 2022 Weekly Market Outlook issue, Greg highlights several long-term trends in interest rates to show how they can keep rising today... details why investors should be prepared for interest rates to remain high moving forward... and reveals how investors can still find ways to profit in today's uncertain market...

High Interest Rates Are Here to Stay

By Greg Diamond, editor, Ten Stock Trader

Nearly everyone knows what's happening now...

Inflation remains near 40-year highs and the Federal Reserve – along with many other central banks around the world – is raising interest rates in the attempt to quell rising prices.

This has led to tighter financial conditions, which have generated incredible volatility in global stock markets... and also fueled a bear market.

Considering the Fed's insistence on continuing rate hikes, I want to discuss just how high those rates can go.

And of course, I'm going to look at this from a technical perspective. That's a lot more productive than guessing when or if inflation will cool off... or what the central bank might or might not do going forward.

Simply put, I'll show you why interest rates can keep rising, and why investors should get used to higher rates for the near term...

I've written about the overwhelmingly simple concept of "following the trend" for the past few years.

The popular saying is, "The trend is your friend, until the end." If you have the discipline to follow the trend, it can keep you out of trouble when investing and trading, no matter what market you choose.

So let's take a look at the long-term trends in interest rates...

Here's a chart of the U.S. 10-year interest rate going back to the late 1970s. (Each vertical bar represents one month of price action.)

From the top left of the chart, we can see how interest rates started tanking once former Fed Chair Paul Volcker took on inflation. The two red arcs mark the high and the key lower high that set in motion the long-term downtrend.

You can see how well this market trended, based on the black dashed lines. Interest rates were suppressed for nearly 40 years.

That's a remarkable trend.

We can also observe a big recent shift on the right side of the chart. Most important, the black dashed lines that have held this downtrend have been broken.

That likely signals a new uptrend.

This is important because it marks, from a technical perspective, a new era of higher interest rates.

Even with the Fed poised to slow down the pace of rate hikes, we're still living in a new era of higher interest rates based on the simple rules of technical analysis.

How long can this last?

Well, longer than you think.

After all, overcoming multidecade-high inflation is a massive undertaking.

I'll be following (and highlighting) the chart above in the years ahead. It will be a road map (along with other charts) to gauge when and where inflection points emerge for interest-rate trends...

Together, they will help us navigate, and profit from, the markets.

Now, you may be wondering... if interest rates are set to rise out of a 40-year bear market, does that mean stocks will remain in a 40-year bear market?

Absolutely not.

Eventually, stocks will start to discount a higher interest-rate environment. We'll see extreme pessimism and positioning in stocks, and that will lead to higher stock prices.

This is no different than any other transition from bear market to bull market throughout history... We just need to keep an eye on the timing of the transition. And that's easier said than done.

In the short term, higher rates are here to stay. And that means we should expect more volatility in the stock market.

But that doesn't mean you can't profit in today's market.

To do that, many investors simply need to accept this ongoing chaos... and leverage the principles of technical analysis.


Greg Diamond

Editor's note: This era of high rates is set to drag on, but Greg also believes we're on the brink of a huge moneymaking opportunity. He says a rare market event that has happened just three times in 25 years could soon ripple through stocks...

In fact, Greg recently hosted an online event to share how investors can position themselves to profit before this inflection point hits. Plus, you'll get the ticker symbol of his No. 1 investment for 2023. Click here to watch the full replay...