In December, the Federal Open Market Committee raised short-term interest rates by a quarter of a percentage point, the first interest rate interest rate increase in a year and only the second in over a decade. In addition, the Fed said that it anticipates three additional interest rate hikes in 2017. Faced with the prospects of rates rising faster than the have since 2005-2006, we wanted to find out how investors feel rising rates will impact the stock market.
AAII Weekly Survey Question
So last week we asked our readers the following:
What impact will higher interest rates have on the stock market?
Here is how they responded:
Out of the 2,331 readers who responded, 51% believe that higher interest rates will have a somewhat negative impact on the stock market. Another 23% feel that higher interest rates will have a somewhat positive impact on the stock market. Overall, one-fifth of respondents feel that higher interest rates will not have any impact on the stock market. Lastly, only 6% think that higher interest rates will have a significant impact on the stock market, with 4% believe that higher rates will have a significantly negative impact on the stock market and the remaining 2% feel higher rates will have a significantly negative impact on the stock market.
Weekly Special Question
After asking readers how they felt higher interest rates would impact the overall stock market, our weekly special question probed how they are impacting individual behavior:
How have the prospects of higher interest rates impacted your investment strategy?
By and large, the prospects of higher interest have not impacted the investment strategies of AAII readers. Specifically, 46.1% of the 343 respondents said that the prospects of higher interest rates have not had an impact on their investment strategy. Among those who have altered their investment strategy, roughly 40% say they have lowered their exposure to bonds. Another 30% say they have either shortened the duration of their bond holdings or are building up their cash position. Fourteen percent of respondents say they have increased their position in financial stocks, ETFs or mutual funds while nearly 12% say they have moved out of interest-rate sensitive equities or high-yield stocks.
Here is a sampling of the responses:
- “A temporary shortening of duration.”
- “As a retired individual, I hope rates continue up.”
- “At the moment, I am keeping more of my bond allocation in cash than normal.”
- “Banks should benefit from higher interest rates, so am likely to add to my holdings in that area.”
- “I am heavily involved in real estate securities and expect the higher interest rates to impact negatively on this segment of the market.”
- “It has reinforced my decision to stay away from bonds for the time being.”
- “Limit investment in dividend paying stocks, and stocks that are impacted by higher interest rates.”
- “Watching the dividend paying stocks for any changes in distributions.”
Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at http://www.aaii.com/memberquestion.