While the recent stock market rally looks to be on shaky ground, Deutsche Bank says staying the course makes sense into the New Year as the Federal Reserve dials back the pace of its interest rate hikes.
“We look for rates volatility to fall as the Fed slows the speed of hiking and as policy rates are closer to eventual terminal rates,” Deutsche Bank strategist Binky Chadha wrote in a note on Tuesday. “We look for equity volatility to fall with rates volatility, for systematic strategies to raise equity exposure from extremely low levels, and see the equity rally as having further to go.”
Chadha’s research shows that stocks have tracked interest rate volatility in the past few months, and he expects that trend to continue moving forward and benefit stocks.
“While the S&P 500 has been at its current level 4 times over the last 5 months, and rates successively higher at each point, it has tracked implied rates vol which was at similar levels each time,” Chadha added. “Moreover, on the…
This article was written by and originally published on finance.yahoo.com