Public and private debt interest rates are rising worldwide, which has worried investors. Bond yields are up, creating uncertainty in financial markets and increasing financing costs for governments and companies.
However, stock markets are not falling as many had expected. The explanation for this apparent contradiction lies in the strong economic growth currently being observed, which has supported equity markets despite the higher rate environment.
Additionally, companies are achieving record profits, which can help stock markets absorb rising financing costs. Solid corporate financial results provide a cushion that mitigates the negative impact of higher interest rates.
The central question the article raises is precisely this: why don't equity markets react negatively to rising debt interest rates, when traditionally we would expect an inverse correlation between these two factors.
