Rate Hikes Are Spooking the Market, but Stock Investors Are Focusing on the Wrong Rate

MarketWatch2022-09-30

The stock market has been spooked by rising interest rates. Let’s think carefully, from a value investing standpoint, about these fears.Warren Buffett famously argued that investors should think of ...

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来人
2022-09-30
来人
Ok
KK2021
2022-09-30
KK2021
ok
- KK2021:
  ok
T202311701
2022-09-30
T202311701
哦
yeo
2022-09-30
yeo
Nothing new
- SeLby:
  Ok
dancingbook
2022-09-30
dancingbook
K
PangWeeJing
2022-09-30
PangWeeJing
[Happy]

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Let’s think carefully, from a value investing standpoint, about these fears.Warren Buffett famously argued that investors should think of ...</p>\n\n<a href=\"https://www.marketwatch.com/story/rate-hikes-are-spooking-the-market-but-stock-investors-are-focusing-on-the-wrong-rate-11664482580?mod=home-page\">Source Link</a>\n\n</div>\n","source":"lsy1603348471595","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Rate Hikes Are Spooking the Market, but Stock Investors Are Focusing on the Wrong Rate</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nRate Hikes Are Spooking the Market, but Stock Investors Are Focusing on the Wrong Rate\n</h2>\n\n<h4 class=\"meta\">\n\n\n2022-09-30 13:21 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.marketwatch.com/story/rate-hikes-are-spooking-the-market-but-stock-investors-are-focusing-on-the-wrong-rate-11664482580?mod=home-page><strong>MarketWatch</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The stock market has been spooked by rising interest rates. Let’s think carefully, from a value investing standpoint, about these fears.Warren Buffett famously argued that investors should think of ...</p>\n\n<a href=\"https://www.marketwatch.com/story/rate-hikes-are-spooking-the-market-but-stock-investors-are-focusing-on-the-wrong-rate-11664482580?mod=home-page\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":".DJI","symbol_name":"道琼斯","start_time":0,"source_url":"https://www.marketwatch.com/story/rate-hikes-are-spooking-the-market-but-stock-investors-are-focusing-on-the-wrong-rate-11664482580?mod=home-page","article_id":"1142009436","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1142009436","pubTimestamp":1664515286,"columns":[],"sourceInfo":{"source_id":"lsy1603348471595","name":"MarketWatch"},"weMediaInfo":null,"summary":"The stock market has been spooked by rising interest rates. Let’s think carefully, from a value inve","collect":0,"end_time":0,"defaultTopTitle":"marketwatch.com","property":[],"viewcount":null,"language":"en","relate_stocks":{".DJI":"道琼斯",".IXIC":"NASDAQ Composite",".SPX":"S&P 500 Index"},"translate_title":"加息令市场恐慌，但股票投资者却把注意力集中在错误的利率上","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{".DJI":0.9,".IXIC":0.9,".SPX":0.9},"content_text":"The stock market has been spooked by rising interest rates. Let’s think carefully, from a value investing standpoint, about these fears.Warren Buffett famously argued that investors should think of stocks as “disguised bonds,” in that stocks pay dividends, analogous to the coupons paid by bonds, and can be valued similarly. Bonds are routinely valued by discounting their coupons and maturation value by a term structure of interest rates.It would be a mistake to use one interest rate to value bonds with different maturities; for example, to use the same interest rate to value three-month Treasury bills TMUBMUSD03M, 3.300% and 30-year Treasury bonds TMUBMUSD30Y, 3.711%. It would also be a mistake to use a single interest rate to value bonds with different coupon rates; for example, to use the same interest rate to value 20-year Treasurys TMUBMUSD20Y, 4.027% with 3% and 5% coupon rates. Bonds should be valued using the full term structure, and knowledgeable investors do so.The exact same logic applies to stocks. John Burr Williams, one of the founders of value investing, wrote that, “A constant rate is wrong, and can only lead to wrong results.” In his classic treatise The Theory of Investment Value, Williams argued that a stock’s intrinsic value should be determined by discounting dividends by a term structure of interest rates (plus risk premia), analogous to the term structure used to discount bonds. A dividend three months from now should be discounted by a three-month rate, a dividend 10-years hence by a 10-year rate.Williams recommended that stock investors who want to use a single interest rate use an extremely long-term interest rate, specifically, the “yield to perpetuity” on Treasury bonds, which is an average of the term structure rates for bonds that never mature.Williams’ arguments for a complete term structure never caught on. Instead, academics and stock investors generally use a single interest rate, typically a short-term rate. For example, finance textbooks authored by Copeland and Westin; Body, Kane, and Marcus; and Body and Merton all use the three-month Treasury bill rate. The textbooks authored by Brealey and Myers and Ross, Westerfield, and Jaffe use one-year Treasury bills TMUBMUSD01Y, 3.998%. BofA Merrill Lynch and Goldman, Sachs have used 5-year Treasury rates. JPMorgan has used the 10-year Treasury TMUBMUSD10Y, 3.782% rate.The use of a short-term rate is sometimes rationalized by the argument that investors intend to hold stocks for only a few months. This is akin to saying that investors who intend to sell a 30-year Treasury bond after three months should value the bond by discounting 30 years of coupons by the three-month T-bill rate. This argument is clearly wrong for bonds and it is also wrong for stocks.The insurmountable problem with using a single interest rate — short or long — is that the valuations zig and zag unreasonably as the term structure twists and turns. Between March 31, 2010, and June 30, 2010, for example, the six-month and one-year Treasury rates were stable while long-term rates fell by almost a full percentage point. Investors using short-term rates wouldn’t change their valuations; investors using long-term rates would increase their valuations dramatically.Between Dec. 31, 2007, and March 31, 2008, Treasury rates beyond 18 years increased while shorter-term rates collapsed. Investors using long-term rates would conclude that stock valuations had fallen, while investors using short-term rates would draw the opposite conclusion. They could both do better using the complete term structure.Long-term rates have increased only modestly — and long-term rates are more important for valuing stocks.Long-term rates typically are above short-term rates to compensate investors for the greater market value risk. The current downward sloping term structure past one-year rates indicates that and bond investors expect interest rates to be lower in the future than they are today. They may well be wrong, but current interest rates are what investors have to consider when deciding whether to buy stocks.The large jump in short-term rates is indeed striking but long-term rates have increased only modestly — and long-term rates are more important for valuing stocks. Since June 1 through earlier this week, the S&P 500 SPX, -2.11% had fallen 11%, so that the current dividend yield on the S&P 500 is around 1.75%, compared to a 30-year Treasury rate of 3.70%. If dividends grow by around 2% a year, on average, over the next 20-, 30- or 50 years, stocks will be the more financially rewarding investment.More generally, investors should value stocks using a complete term structure of interest rates. For those who insist on using a single interest rate, the best rate is an extremely long-term rate such as the yield to perpetuity recommended by John Burr Williams — which, as far as I know, no one uses. The worst choice is short-term rates — which are also the most 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