The Neutral Interest Rate…

What is the Neutral Interest rate?

First, this is a fascinating day, big macro economic things are happening, and Jim Cramer is instead concentrating on old news, i.e. the Digital Age, the driver of the market for the last couple of years.

Here is our take on the Neutral rate that is emerging, it is much different from the current market view. This chart goes back to March 1989, it is the average rate (30Y + 10Y + 5Y + 2Y).

What we see is that the Neutral band looks to be 3.0 % to 5.0 % with the Neutral rate coming in at 4.0 %. Basically, we moved into the Neutral band in June 2022 and have been flopping around above the neutral level since September 2022.

What does this mean for the stock market?

The Markets Fatal Flaw in my view, it is not that Forward P/E ratios are high, it is the expected earnings part of the equation. Turbulent times do not make for happy strong earnings.