Will Rising Interest Rates Derail the Market?

Interest rates are going up, which will be a drag on homebuying and corporate borrowing. But is it enough to stop the market's bull run? A look at the reason why rates are going up provides a good answer.

Jan 13, 2014 at 4:31PM

Mortgage rates are up more than 1 percentage point since last summer, and as the Federal Reserve pulls back on an $85 billion monthly bond-buying program it's likely rates will keep rising. Will that derail the market? 

Fool contributor Travis Hoium points out in the video below that while there are definitely risks with rising rates, they haven't resulted in a falling market so far. The Dow Jones Industrial Average (DJINDICES:^DJI), to use one example, just completed a phenomenal year. Gross domestic product growth and unemployment will probably have more to do with this year's market performance than where rates stand. 

There is a silver lining for higher rates at major lending institutions. JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) will benefit from higher long-term rates if the Fed keeps short-term rates low, something the central bank plans on doing at least into next year. 

At the core, it's important to keep in mind why rates are going up. The Federal Reserve thinks the economy can stand on its own without more stimulus. That's great news for long-term investors, and the market rarely has a much of a setback if the economy is in growth mode. 

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Erin Miller has no position in any stocks mentioned. Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of JPMorgan Chase and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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