Secular Changes in Interest Rates

I really like the way this chart, by Joseph Ellis, presents this information:

Long-term interest-rate changes and the stock market

click for larger graph


Source:  Ahead of the Curve


Ellis observes:

Because of the inverse relationship between interest rates and stocks’ price-earnings ratios, rising interest rates from 1960 to 1982 contributed to a compound annual appreciation of only 2.9% in the S&P 500 Index.

Conversely, falling interest rates from 1982 to 2003 were a major long-term stimulus to the stock market, helping produce compound annual growth in the S&P 500 of 10.5%. Note that bear markets from 1960 to 1982 were more frequent and longer, whereas from 1982 to 2003 they were less frequent and shorter in duration.

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