Interest Rate Hike
Hi everyone,
I was wondering if any of you know whats a good answer to how does the upcoming interest rate hike affect the investment banking industry for M&A, Capital Markets (both DCM and ECM) and hiring.
Thanks a lot.
Hi everyone,
I was wondering if any of you know whats a good answer to how does the upcoming interest rate hike affect the investment banking industry for M&A, Capital Markets (both DCM and ECM) and hiring.
Thanks a lot.
+184 | Is my life over after not getting GS? | 36 | 1d | |
+95 | How to stop feeling like shit for not making it in IB? | 39 | 13h | |
+53 | Updated LA Banking Scene (2024) | 38 | 1d | |
+44 | Why Is It Called Investment Banking? | 17 | 1d | |
+37 | best groups for energy transition? | 32 | 16h | |
+31 | UBS Actual Buyside Exits 2024 Post-Integration | 9 | 21h | |
+30 | Got RBC offer but I have cold feet accepting. | 39 | 1h | |
+27 | Very ridiculous interview feedback | 15 | 1d | |
+26 | Series 79 Help / Tips to Pass The First Attempt | 9 | 26m | |
+25 | Cal Poly Slo vs UCSB vs Extra year in community college | 8 | 4d |
Career Resources
It will help if you actually make the effort to come up with some salient points yourself, THEN people might be more inclined to pitch in and help.
Sure,
At the moment, the following would be my opinion.
In overall, I feel that the increase in interest rates will affect M&A and capital markets negatively and thus hiring will be down next year.
this is most likely the case, but I think it is good that the Fed is trying to rein in the bull before the low interest rates eventually builds up its own big bubble ..
.
Makes sense. Gave SB+
I would be careful when making assumptions about what will happen in the short term (i.e. next year). This initial rate hike just marks the starting point of what will be a continuous pattern of rate hikes over the long term.
Will this first rate hike affect M&A activity in the near future? No, probably not. In the long term? Most likely.
Seems like the U.S and European stocks share price actually increased after the interest rate hike. I guess you are right that 0.25% wont really change much in the short term.
I wouldn't be optimistic, as another put it, the credit window has slammed shut.
Five Reasons Why a Rate Hike is Good (Originally Posted: 06/16/2015)
The speculations of when a rate hike will occur has dominated market headlines with the ending of the Fed’s Quantitative Easing program in October. A volatile first quarter for the markets presented a foreshadowing for what many believe will be bearish market with the imminent raising of interest rates in the near future. Moreover, many have disregarded a slow Q1 for the economy due to harsh weather, and concluded that growth will continue and rates will be raised sometime this year. Here are five positives that can be taken from a Fed rate Hike.
1. Past S&P 500 Reactions The U.S. economy is currently in a phase of constant growth, thus causing inflation. Historically when the Fed increases rates to counter this inflation, we see a positive return in the S&P 500 the year previous and following. Stocks will not be completely thrown off track.
2. A Stronger Dollar Europe in implemeting a QE plan, Sector Purchase Programme (PSPP). Japan, also trying to combat deflation is implementing a QE plan. Higher rates in the U.S. in comparison to foreign markets translates to a stronger dollar. It hit a 12 year high against the Euro in March trading at 1.07. This trend will continue as rates increase steadily.
3. Attractive Yield Demand will increase globally for long term U.S. bonds, short-term bonds, money market funds, and savings bonds. These safe assets will be more attractive in comparison with lower yields globally, such as the bordering negative sovereign bonds of Europe. These bonds in Europe will not be altered anytime soon. Goldman has gone on record as saying this minuscule yields have become the “new normal.”
4. Healthy Economy A Fed rate hike signals an extremely healthy and growth orientated economy. It is as if the Fed is putting a stamp of approval upon the economy. Quarter one of 2015 did not look promising with consumer spending rising only .1 percent, and a gross domestic product gaining a merely .2 percent. However, Economists are positive that this was due to an overly harsh winter, and the economy will continue its growth. The rate hike will confirm the economy doing exceedingly well.
5. Mid-Caps Will Grow As stated previously with the Fed raising rates, the economy is deemed healthy and growing. Many say the mid-caps will continue to grow and the valuations will be attractive. The mid-caps are less susceptible to volatility than small-caps, and offer a solid investment for many.
You sure that will apply to #1?
Nobody knows for sure. However, a 10% average return and positive 8/9 times is about the base case for the market at any time. It certainly seems very reasonable. It's not exactly a bold prediction to say the market will perform about average over the next year.
OP really does not provide strong evidence about why an interest-rate hike is good for the stock market, besides just listing catalysts that are mostly accounted for in the current market. If stock markets continue to do well against the backdrop of an interest-rate hike (which I believe it will), it will be because the Fed will be very, very cautious and gradual with their fiscal policy.
A Fed rate hike signals an extremely healthy and growth orientated economy. It is as if the Fed is putting a stamp of approval upon the economy.
blame it on the weather.
The OP's analysis is weak, at best.
First of all, the Fed doesn't--or shouldn't--give a sh*t about the stock market or the growth of "mid-caps." That's completely and utterly out of the purview of the Federal Reserve. I have no idea why that would even be listed as a reason to raise rates.
Second, umm, what inflation? There is no substantial inflation in the economy.
Third, why would the Federal Reserve slap a stamp of approval on a mediocre economy? 2.5% (annual) growth is mediocre, not a "strong and healthy" economy.
Fourth, GDP in Q1 2015 fell at a pace of 0.7 percent; it didn't increase at a pace of 0.2 percent. That should probably change your perspective on what you deem a "healthy" economy.
I'm not sure whether I agree that higher interest rates would have a positive effect on the stock market. On the one hand it singals the economy could be stronger but from a fundamental point of view it means that discount rates are higher and margins could begin to compress for many industries.
Interesting claim that a stronger dollar is "good"... It has its pros and cons, but I wouldn't label it "good", especially in this environment of over the top strength...
1 isn't a particularly convincing claim. The past is NEVER indicative of the future.
@DCDepository" hit the nail on the head about mid-caps. However, while 2.5% isn't exactly "strong and healthy" -- it's a start.
You need a hike to avoid inflationary pressures and perhaps reduce the risk of bubbles. As others mentioned, the hike indicates a strong economy but increases the discount rate, so the net effect on stocks is unknown.
The strength of the USD has resembled a significant Fed tightening (along with cheap oil prices). The jobs market is not as tight as previously thought, with hourly wages showing a slowdown in growth.
All in all, I think we will see a hike in December. I doubt this will cause hell to break loose in the illiquid bond market, but I do expect periods of high volatility in that market.
I'm very surprised by the Fed's decision.
Out of curiosity, why are you surprised? We had negative Q1 GDP growth; on average we're around 2.2-2.5% annual GDP growth; we're experiencing virtually no inflation; and the job market is mediocre (not bad, but definitely not robust). Why in the world would one expect a rate hike?
Rising rates will cause borrowing costs to increase...not great gents
Unintended consequence of rising rates; the math of further debt issuance to tap into off-shore capital or to buy back equity will not be as attractive. One positive would probably be an increase in the velocity of money from increased capex since buybacks may no longer make sense from an IRR perspective as opposed to actually investing in growth capex... or money leaving closed loop that is the equity markets actually entering the 'real economy;
December Rate Hike (Originally Posted: 12/16/2015)
With the Fed announcing the rate hike today of 25 bps due to the domestic economy improving since 2006, and most likely increasing the rates at 25 bps increments in the months to come, how do you all feel this will affect real estate?
Being the first change in rates for some time, do you all believe we will experience near-term volatility in cap rates increasing throughout all asset classes or until the next hike?
Want to hear all your thoughts.
More people will buy...
I'm not 100% sure real estate lending rates will go up that much. There's extreme competition out there right now for mortgage loans and quality commercial real estate loans.
People seem to forget that the treasury note is a function of demand--- not what the Fed commands it to be. USA is a safe haven and Europe and China are not. USA CRE and UST will remain in high demand. Historically, as rates rise the spread between loans and UST tightens, helping commercial RE loans stay lower.
Pretty decent point. Raising interest rate targets could be a positive signal to foreign investors, who may, paradoxically, push rates lower (or keep them the same) through high demand.
Isn't there a floor for most floating rate loans?... something like "no matter how low the fed makes the rates, the minimum interest is is 2%"... From the little I have seen (student loans; not mortgages) the floor has been well above 0.25%. So will probably not affect anything much.
I have to point out the irony though. Banks are scared and need 0% interest rates (blah... blah...) but they had no issue setting non-zero floors for borrowing individuals - you know - the ones who actually need to spend.
I think the spread between interest rates and property returns will remain large enough to continue to incentivize CRE investing. Right now we are seeing crazy returns, so the slight increase in rates will dampen returns a bit, but not much. Also, consider the alternative investment vehicles. Oh wait, there aren't many others. In terms of safety, stability, and price, CRE remains attractive to buyers around the world, especially overseas.
The "large" spread only exists in unique places. There is hardly any spread in a lot of CBD multifamily and office.
I think I posted this in the "where are we at in the cycle thread"...
Yeah, if Wall St. slides (Dow is down 2% YTD) money will flock to bonds and keep rates down through the first couple year or two of hikes.
A lot of that demand is because of QE and reinvestments from the Fed's large balance sheet.
I think, no question, that if the Fed were to start selling off assets in large amounts, you would see yields on longer-term MBS rise. As the TBA MBS market and the treasury market are widely considered interchangeable (due to the government guarantee), for similar-duration Treasuries, you'd certainly see a positive effect on yield.
The last thing we want is an inverted yield curve, so I think the Fed should act on this very soon.
But congress just decided that the government dividends in fannie and freddie will keep going back into new MBS---pushing down those MBS "rising rates".
Its a perpetual cycle. Its a f*cking shame that the government/congress has so much power over the economy, rates and mortgages. What ever happened to laissez faire government. I'm really sick of the bond market/equity market waiting on yellen's bated breath. Now a earnings release has less to do with stock volatility than yellen's unconvincing words.
Fed rate hikes (Originally Posted: 12/21/2015)
Federal Reserve has increased the interest rate to 0.5% after nine years at 0.25%. What this means? – higher interest rates reduce property value – low-yield property earns more over long-term – real estate prices rise faster than inflation – diversified investment portfolios are most profitable
Does it affect you? Does this change your investment plans? Please share.
is this a debate or do you legitimately not know how interest rates affect various markets?
Pretty much disagree with all of your points / most of them make no sense.
Yellen Signals March Rate Hike Likely (Originally Posted: 03/07/2017)
Janet Yellen dropped a strong last week (3/3) in her speech that an interest rate hike is on the way for March. I am actually really interested to here what people's opinion is in regards to interest rate levels currently. An article on CNBC goes further into detail:
What is everyone's opinion on this low interest rate environment? Do you think that the fed is right in looking to raise interest rates by next month?
Market is reaching meteoric heights. Economy is doing well (per the numbers anyway). Why not increase rates.
Could they be possibly increasing rates to control the markets rapid increase? In a way controlling the boom in the economy, as to potentially mitigate effects if the economy takes a down turn.
I agree with the increase as well. Why has it taken this long to start increasing rates? The fed has consistently highlighted that unemployment and inflation were key focus points for rate hikes. With unemployment seemingly so close to full employment you would think interest rates would be a bit higher.
Some people last year were raising the argument (not that I agree with them) that the fed was waiting to raise rates until after the election. While the fed is supposed to be independent of politics, the timing of rate hikes did meet this theory (again I don't agree with it).
On the contrary, were worries about geopolitical events part of the reason for the fed keeping rates low last year? I'm not an expert, just curious about some of the stuff people have thrown out there the past year or two in regards to interest rates.
Because it will cause a cataclysmic disaster.
I think there are a variety of reasons the Fed is looking to raise rates. Since 2015, the U.S inflation rate and foreign direct investment have been trending upwards. Also, the Consumer Price Index and average hourly wages are at all-time highs (roughly 240 and 22, respectively). Lastly, the unemployment rate is around 4.7%, the lowest it has been since the great recession. There are other factors that the Fed considers when raising rates, but I think these are some of the most important. A really useful website is tradingeconomics. They give you TONS of economic information to research. I believe Janet Yellen said that Fed was aiming to raise rates three times this year. A rate hike in March would keep them on track for that goal. I think what is also important to note is that the Fed Funds Rate is still INCREDIBLY low when looked at from a historical perspective.
Natus officia optio et aut praesentium reprehenderit quia. Laudantium tempora consequatur aliquid iste doloremque corrupti hic. Dolor assumenda vel laboriosam qui labore placeat. Impedit deleniti esse qui autem. Magnam enim vel quas tenetur illo ea occaecati et.
Omnis accusantium et amet suscipit dolor. Explicabo amet suscipit qui molestias eum consectetur. Sed optio est sed sapiente ut ut. Voluptatum nesciunt sed enim enim deserunt itaque molestias. Nostrum eum velit illo accusantium vitae ducimus.
Laborum fugiat deleniti quaerat qui tenetur omnis. Eum eveniet distinctio et qui molestiae ut nisi. Unde et ut sapiente commodi fugiat ut quod quam. In blanditiis sunt non officia rerum voluptate.
Quis ut sint voluptas velit quis quidem consectetur. Sunt quibusdam quis praesentium mollitia et autem commodi est. Reiciendis exercitationem repellat excepturi culpa natus quia possimus. Fugit quis magnam numquam possimus. Recusandae quibusdam beatae rerum vel consequuntur ab fuga.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Voluptates eaque et incidunt vel et. Ipsam possimus ut autem. Vel inventore in repellat rerum ut.
Quae nemo eaque tempora eos veritatis. Quis rerum nihil atque aut est. Sit quo error saepe architecto hic. Vel ipsam voluptatem minus et eos magnam exercitationem. Eveniet et eius ut qui voluptatibus autem natus quaerat. Soluta aut quisquam illum similique qui quo maiores.
Ducimus consequatur ea ut iste eum est cupiditate. Aut facilis ut optio aut.
Necessitatibus vitae accusantium voluptatem quia. Magnam illo molestiae eius sequi rerum. Iure voluptas omnis dolore.