Question about stock market and interest rates...

[Mountain Girl]

If the stock market drops, a lot, what happens to interest rates? Do they go up or down? Or does it affect the rates?

Does anyone know what happened to the rates during the stock market crash back in the thirties?

[ddg1263]

The majority of times when interest rates go up the stock market will decline. They move in opposite directions. I can go into great detail for you about the reasons, but I think you will be bored out of your mind

[Cameron]

Rates typically increase when the Fed fears inflation is kicking in. They attempt to slow the growth by making money more expensive to borrow.

During the Carter years we bought our first home and the mortgage rate was 16%. Thats right, 16%!!

But during these times CDs also go up. There are now 7% CDs in some areas with the norm around 5% or so. I remember 12% CDs just a few years ago.

[PlumBob]

MG,

A decent discussion of the crash of '29 can be seen at http://en.wikipedia.org/wiki/Recession

A chronology of economic happenings of those years is at http://www.huppi.com/kangaroo/Timeline.htm

PlumBob

[Mountain Girl]

The majority of times when interest rates go up the stock market will decline. They move in opposite directions. I can go into great detail for you about the reasons, but I think you will be bored out of your mind


If rates go up, the market declines, but what happens to the rates when the market declines first. Or, what if there was a critical drop in the market, how would that affect rates?

[Mountain Girl]

But during these times CDs also go up. There are now 7% CDs in some areas with the norm around 5% or so. I remember 12% CDs just a few years ago.

Are CD's insured by the FDIC? If I have money in a CD at ABC Bank, and they go under, is my money gone?

I'd love to see 12% interest rates again on CD's, but that wouldn't bode well for homebuyers.

[Mountain Girl]

[QUOTE=PlumBob;122540]MG,

A decent discussion of the crash of '29 can be seen at http://en.wikipedia.org/wiki/Recession

A chronology of economic happenings of those years is at http://www.huppi.com/kangaroo/Timeline.htm

These were interesting, especially the chronology. Thanks

[Cameron]

FDIC insurance now covers retirement accounts up to $250,000. You could have that much in CDs and be covered.

I saw a 7% callable CD offered the other day, but it was for 20 years. If rates took off and CDs were again at 10 - 12% you'd be stuck, or else assessed a penalty for early withdrawal.

But I am retiring and plan to ladder CDs for most of my income needs with some long range money in a dividend paying fund and a nice utility fund.

[C. Little]

Also, if there is a major, and sudden decline in the stock market, then money will flow to the safety of treasury securities, thus making rates temporarily go down.

[PlumBob]

MG, you might also want to read through this article -

"There's no doubt this recent upward movement in yields justifies a 5%-10% correction in stock markets," said the longtime manager of the $103.1 billion Pimco Total Return Bond Fund. . .

Investors should watch the impending sale of DaimlerChrysler AG . . .

From what he hears, Gross says yields on the paper being issued to help finance the deal will be around 9%. But some pieces of that placement could reach yields of close to 12%, he added. . .

The Chrysler negotiations are being colored by rising rates in high-yield, or junk, bonds. "It's about time high-yield markets moved back up in terms of yields," Gross said. . .Quoted in part from http://www.marketwatch.com/news/story/pimcos-gross-sees-5-10/story.aspx?guid=%7B7FB8A1EA%2D89E1%2D4E32%2DA94E%2 D029CCB1A9513%7D