August 27, 2026
By Peter Bower
The U.S. bond market is four times the size of our stock market. Next to earnings, the next biggest factor in influencing stock valuations is interest rates. The higher rates, the smaller the multiple investors are willing to pay for earnings. After all, rates are competition for stocks. The higher interest rates, the more attractive they become as an alternative. This is not a problem yet, but this bears watching.
Inflation is one of the more important factors in establishing rates in a free market. Another is supply and demand. The greater the demand, the higher the price. Today, both inflation and high demand are pushing interest rates higher. Investors are concerned that high energy prices could keep inflation higher than the Federal Reserve would like. The enormous borrowing from the U.S. government to service its debts plus additional demand for funds from the A.I. buildout is also pressuring rates.
The trend is for higher rates. Still, interest rates are historically reasonable. However, there could be a breaking point if the trend does not reverse. The Lonely Bull is following this closely. Some steps to prepare for setbacks have already been taken. In the meantime, stay steady my friends.
-The Lonely Bull
