The Federal Reserve raised interest rates on Sept. 16, following a hawkish August speech from new Fed Chairman Kevin Warsh. According to The Motley Fool, Warsh told the September meeting: "is too high and has been for too long", signaling further hikes and a longer stretch of elevated rates. The 10-year Treasury note yields 5.17% annually as of Sept. 24.
Warsh's comment on inflation implies rates need to climb further and stay elevated longer, and it follows a decidedly hawkish August speech that preceded the Fed's rate hike.
Treasuries now pay over 5%
Further hikes could push the 10-year yield even higher, though it tends to react more to inflation expectations than to any single Fed decision. Because government debt carries less risk than corporate debt, higher yields mean more competition for dividend stocks.
History offers a mixed guide
In 2022, the Fed took rates from near zero to above 4% as the S&P 500 fell 19.4%, yet some of the biggest pharma dividend stocks, AbbVie and Bristol Myers Squibb, still rose. The Fed kept hiking through 2023, and that year Pfizer's stock fell 44% while AbbVie finished the year down 4%.
Rates were rising in both years, yet performance flipped entirely between them. In this cycle, as in the last, interest rates were not the main reason for the divergence between those stocks.
Source: The Motley Fool
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