Why do bonds and interest rates move in opposite directions?

Mon, 27 Mar 2023 15:45:00 PDT

by Salman Ahmed

You’ve heard it dozens of times on this blog: bond prices fall when interest rates rise, and vice versa. In this quick two-minute video, we explain why bonds and interest rates move in opposite directions. Understanding this relationship will help shed some light on why bonds struggled in 2022.

Taking economics too far

Thu, 23 Mar 2023 11:04:42 PDT


by Tom Bradley

David Rosenberg is a thoughtful and experienced economist. He’s in the media often and has a huge following. I know this because my brother-in-law sends me a note every few weeks asking if I agree with his latest article.

But David falls into the same trap many other economists and commentators do — he assumes there’s a tight relationship between what’s happening in the economy and where the stock market is going.

In a recent Globe & Mail article entitled Why the long-term outlook for Canadian stocks is rosy (in the short term, not so much), David finishes with, “… although we believe that equities are likely to see continued downside (on tighter financial conditions/growing recession risks), we think the Canadian equity market has decent value for long-term investors.”

David has wonderful insights, as do a few other economists, but be careful to not get too caught up in his short-term market forecasts. His call that we’re “likely to see continued downside” may prove to be right, but if it is, it will be a total fluke. He doesn’t know what the market is going to do in the coming months, and neither does anyone else. There are too many factors at play. The relationship between the economy and stock market is sloppy at best.

Not to put too fine a point on it, but as I said in a post late last year: “I don’t read market forecasts. These predictions aren’t worth the paper they’re written on and shouldn’t influence investment decisions. If you must, read them to learn about the underlying reasoning and ignore the conclusion.”

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