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Rising Rates Are Still No Barrier for Stocks

December 21, 2016

Stocks have performed well amid the recent rise in interest rates.

Interest rates bottomed during the summer immediately following Brexit, with the 10-year Treasury climbing from 1.36% to 2.52% today. Over that time, S&P 500 gained more than 7%.

Stocks have brushed off higher rates in part because rates are rising due to expectations for stronger economic growth. Indeed, the second half of the year has seen economically- sensitive companies outperform, while many safe, dividend- paying stocks have underperformed due to competition from higher bond yields.

Can the recent trends continue? That may depend on the outlook for inflation. As we have seen, higher rates that reflect better economic growth can be good for stocks. However, higher rates that reflect a rapid rise in inflation can be harmful. With that in mind, we continue to monitor the inflation outlook and corresponding actions by the Federal Reserve.

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Source: Bloomberg, Hefren-Tillotson. Data as of 12/19/2016. PAST PERFORMANCE DOES NOT PREDICT FUTURE RESULTS

This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.