Fears of rising rates killing bull overblown?

NEW YORK — Will rising interest rates crush stocks? Wall Street bears fear the worst. But history says the fear is overblown.

The performance of the Standard & Poor's 500-stock index in periods when the 10-year Treasury note is rising has actually been positive, according to an analysis by Sam Stovall, chief equity strategist at S&P Capital IQ.

Last week, stocks hit a rough patch when Federal Reserve Chair Janet Yellen said the Fed could start hiking short-term rates, currently pegged near 0%, within six months of the end of its bond-buying program. That pushed up the timetable for the first rate hike to as early as April 2015, sooner than the late-2015 date Wall Street was expecting. It also nudged long-term rates higher.

U.S. stocks kicked off the new week with a weaker tone, with the S&P 500 shedding 0.5% Monday.

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While low rates have been the main driving force behind the stock market's big move since the March 2009 low, an environment of slowly rising rates may not be as damaging as investors might think.

The 10-year Treasury note ticked down to 2.73% Monday, up from its 2014 low of 2.58% but below the 3.03% yield at the end of 2013.

Some quick statistics:

• Commodities, stocks and real estate investment trusts all posted positive monthly returns, on average, during months when the yield on the 10-year note was rising, data since the end of 1976 show. The S&P 500 rose 0.9% per month.

"Commodities, stocks and REITs are natural inflation hedges," says Stovall. "Higher rates are (also) usually a sign of improved economic conditions."

• The S&P 500 didn't start to feel the pain of higher rates and suffer median monthly declines until the 10-year note rose above 6%, data since 1953 show.

"6% is the line in the sand," says Stovall.

But he throws in a caveat: "This time around stock prices may not wait until the 10-year note hits 6%, sin! ce the climb started from such a low level," says Stovall. The speed at which the 10-year note rises is also key. The faster rates rise, the more potential for stocks to react badly, he adds.

The good news: Stocks have risen a median 1.9% monthly when rates were rising and the 10-year was below 3%, as it is now, the data show.

• Cyclical stocks fare best. When rates are rising, stocks that are economically sensitive, or those that do well when the economy is improving, post the best performance. Since 1970, the best average monthly returns were posted by tech stocks (+0.76%), energy names (+0.72%) and materials shares (+0.58%), S&P Capital IQ data show.

The laggards? Rate-sensitive stocks, such as telecom services (-0.17%), financials (-0.25%) and utilities (-0.66%).

The muted rise in yields so far is not a major threat to stocks, but that could change quickly, says Richard Suttmeier, chief market strategist at ValueEngine.com.

"The higher the yields rise on long-term government bonds the more expensive the stock market gets vs. bonds," he says. "If yields on the 30-year bond spike to, say, 5%, investors will likely want to lock in a sure thing and buy bonds. Rising rates will eventually be an impediment to stocks, but we are not there yet."