Will Rising Long Term Rates Crash Stocks?

Key macro/market setup (rates → stocks)

Rising long-term interest rates

• Long-term interest rates are rising, with the US 10-year Treasury yield approaching ~5%.
• The discussion suggests it could reach 5% “very soon”, while also flagging risk if it moves to 5.5% or higher.
• The speaker links recent pressure on the 10Y yield to:
  • Inflation
  • War/oil prices

Framework: what drives the 10-year (“long rate”)

The speaker’s rough rule-of-thumb:

• 10-year Treasury yield is driven by:
  • Inflation
  • Real GDP growth

Example given:

• CPI headline inflation ~3.4%
• Real GDP ~1.5%
• Rough implied total: ~4.9% (“where we are right now”)

Control mechanism:

• The Fed controls the short-term rate (fed funds), but cannot directly control long-term yields.
• Long rates are influenced by Treasury supply/demand.

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How rising 10Y yields affect equities (2 transmission channels)

1. Higher borrowing costs (interest expense)

   • More debt ⇒ higher interest expense ⇒ profits decline ⇒ intrinsic value declines

2. Higher discount rate for future cash flows

   • Intrinsic value is the present value of future cash flows, discounted using a rate linked to the 10Y yield
   • Hurt most: unprofitable / growth companies whose cash flows arrive farther in the future
   • Less hurt: already profitable, cash-generating companies

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Are today’s yields “high”? (historical context)

The claim:

• A ~5% 10Y yield is framed as normal/average, not panic territory.

Historical context (since 1950; 76 years):

• Highest: 1981 ~15.6%
• Lowest: 2020 (COVID) ~0.7%
• Average (mean): ~5.52%
• Median: ~4.72%

Conclusion:

• At ~5%, yields are just below the long-run mean and not historically extreme.

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What matters more: the speed and cause of yield increases

The speaker emphasizes that markets react to:

• Speed of the rise
• Why yields are rising

Interpretations given:

• If yields rise due to inflation while earnings are flat/declining ⇒ possible correction/bear market
• If yields rise alongside strong earnings growth ⇒ stocks can still rise even as yields rise

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Portfolio positioning framework (as stated)

1. Don’t predict rates/markets

   • Even the Fed and investors can’t reliably forecast the long rate.
   • Example: expectations of multiple rate cuts (3–4 times) that ultimately did not occur, with narrative shifting toward rising rates.

2. Build a “resilient/bulletproof” portfolio

   • Use diversification to avoid being dominated by the most rate-sensitive segments.

3. Tilt allocation based on rate sensitivity

   • Reduce exposure to categories likely to be hurt most by higher long rates
   • Add/maintain exposure to categories positioned as benefits/neutral to higher long rates

4. Hedge within the portfolio

   • Example: holding REITs while also holding banks (beneficiaries) to help offset drawdowns

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Stocks/sectors most at risk from rising long-term rates

1) Unprofitable growth / emerging tech (discount-rate sensitive)

Why:

• Future cash flows get discounted more when yields rise.

Examples mentioned (explicitly described as “not making money”):

• Snowflake (SNOW)
• Cloudflare (NE)
• IonQ (IONQ) (quantum computing)

2) REITs and utility companies (financing/interest expense sensitivity)

Why:

• Heavy borrowing ⇒ higher interest expense ⇒ lower dividends and share prices.

Evidence mentioned:

• “Many REITs have been coming down” as long rates rise.

Speaker’s disclosure/hedge:

• They own Singapore REITs (dividend portfolio)
• They claim the portfolio is supported because it’s hedged by Singapore banks
• Caution: holding “all REITs” is described as a recipe for downside

3) Highly leveraged cyclicals (debt + business cycle risk)

Examples / categories mentioned:

• Airlines
• Telos (exact reference unclear; likely a ticker/name typo)
• Commodity/property developers (commodities mentioned separately as well)
• Cable companies

Common thread:

• High leverage + cyclical earnings ⇒ rising rates increase interest burden and compress income.

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Stocks/sectors that benefit from higher rates (or are “more immune”)

1) Banks and insurance companies

Thesis:

• Banks benefit via higher net interest margin (NIM) as long rates rise
• Insurers benefit because they can invest float at higher yields

Examples/tickers mentioned:

• Singapore banks: DBS, UOB, OCBC (spoken as “DBS, OB, OCBC” — “OB” likely means UOB)
• Arch Capital (ACGL) (insurance)
• “Alliance” (life insurer) mentioned as listed on the Frankfurt Stock Exchange (ticker not provided)

2) Cash-rich mega caps (net interest expense offset by cash/investments)

Thesis:

• Even if they take on some debt, they have enough cash/equivalents earning interest income to offset interest expense.

Examples mentioned:

• Apple (AAPL)
• Meta (META)
• Google (GOOGL/GOOG referenced)
• Microsoft (MSFT)

3) Energy/commodity companies (benefit when rates rise with inflation)

Thesis:

• In inflationary / rising-rate regimes, energy and commodities can perform well.

Additional notes from the speaker:

• They don’t invest heavily long-term in energy here due to relative underperformance vs S&P and high volatility.
• Drivers mentioned: oil, natural gas, copper

4) Short-duration value / mature profitable firms (less duration sensitivity)

Thesis:

• If companies are already highly profitable, rising discount rates matter less for valuation.

Examples mentioned:

• Linde (LIN) (also written as “Lind plc”)
• Mastercard (MA)
• Visa (V)
• Motorola (ticker not provided)
• Intercontinental Exchange (ICE), highlighted as benefiting from:
  • Margin interest income when rates rise
  • Higher trading activity in energy futures

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Key numbers and performance comparisons used in the argument

10Y yield levels and thresholds discussed

• Example framework target: ~4.9%
• Current discussion point: ~5% (“touching”)
• Concern threshold discussed: 5.5% and higher
• Potential further risk: “up to 6/7/8/9% could be a problem” (framed hypothetically)

Historical extremes

• 1981: ~15.6%
• 2020: ~0.7%

Historical averages

• Mean: ~5.52%
• Median: ~4.72%

Decade-level examples (10Y yield vs S&P 500 returns)

• 1950s: avg 10Y 3.2%; S&P annualized ~19%
• 1960s: avg 10Y 4.7%; S&P annualized ~7.8%
• 1970s: avg 10Y 7.5%; S&P annualized ~5.9% (described as “really high”)
• 1980s: avg 10Y 10.6%; S&P annualized ~17%
• 2000s (lost decade): avg 10Y 4.5%; S&P negative/flat over 10 years (framed as “lost decade”)
• 2020s (as of mid/early): avg 10Y ~3.1%; S&P 500 annual return mentioned ~15.5% for “first 6 years” (context/year clarity is mixed in the source text)

“Lost decade” dispersion claim

• Even when the S&P went nowhere, “top 1%” companies did well.
• Extreme examples cited (with the caveat that the speaker is not claiming the same exact names will repeat):
  • “Monster” +18,000%
  • Tesco +3,900%
  • Autod+1,400% (text garbled; likely “AutoZone” but unclear)
  • TJX +1,100%
  • United Health +690%
  • Starbucks +587%

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Instruments/tickers/sectors explicitly mentioned

Macro/market instruments

• US 10-year Treasury yield (10Y)
• US CPI (headline)
• S&P 500
• Federal Reserve (fed funds rate)

Equity examples (tickers / companies)

• Snowflake (SNOW)
• Cloudflare (NE)
• IonQ (IONQ)
• DBS, UOB, OCBC (Singapore banks; partially formatted in text)
• Arch Capital (ACGL)
• “Alliance” (life insurer; ticker not provided)
• Apple (AAPL)
• Meta (META)
• Google (GOOGL/GOOG referenced)
• Microsoft (MSFT)
• Linde (LIN) (also written as “Lind plc”)
• Mastercard (MA)
• Visa (V)
• Motorola (ticker not provided)
• Intercontinental Exchange (ICE)
• Categories mentioned (tickers not specified): emerging tech, telos (unclear), cable companies, property developers, airlines

Sectors

• Emerging tech / unprofitable growth
• REITs
• Utilities
• Highly leveraged cyclicals
• Banks
• Insurance
• Cash-rich mega caps / mega-cap tech
• Energy / commodities
• Short-duration value

Commodities (drivers)

• Oil
• Natural gas
• Copper
• Energy futures trading discussed (via ICE)

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Disclosures / disclaimers

• No explicit “not financial advice” disclaimer appears in the provided subtitles text.
• The speaker frames views as investing education and references personal holdings (e.g., “I do own…”), but no formal regulatory disclaimer is included in the provided summary.

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Presenters / sources

• Presenter: Adam Coup
• Other external sources are not explicitly named beyond general references to CPI, S&P 500, and “financial websites” (including a tool mentioned as “Stock Oracle”).