Stock Talk - Higher Interest Rates: Headwind, Roadblock – or Opportunity?

Episode Date: September 28, 2026

Higher interest rates can push down the prices of investments you already own. They can also change the income available from newly purchased bonds and other interest bearing investments. So what does that mean for your retirement plan? In this episode of Stock Talk, Chris Perras explains how higher rates may affect bonds, stock valuations, real estate, annuities, and retirement income planning. He also looks at a key question for retirees: if stocks decline while you’re taking withdrawals, how might your cash and short term bond holdings affect the decisions you face? Chris covers three questions to discuss when reviewing a retirement plan: Has the income available from bonds and cash changed your investment tradeoffs? Does your current stock and bond allocation still fit your goals and risk tolerance? How would your withdrawal plan work during a substantial stock market decline? Watch the Oak Harvest interest rate roundtable with Troy, Charles, and Chris: https://www.youtube.com/live/lymiUwb02HU?si=RlS1eILCqIZqtJjI Schedule a retirement plan review with Oak Harvest Financial Group: https://oakharvestfg.com/contact-2/ Chapters 00:00 How higher rates can hurt and help investors 00:53 Are higher rates a retirement threat or opportunity? 01:01 What drives the 10 year Treasury yield? 01:48 Why existing bond prices can fall 02:03 How new bond income can change 02:23 Interest rates and stock valuations 02:48 The late 1990s comparison 03:12 Could AI productivity support earnings? 04:12 Comparing Treasury yields and stock earnings 05:08 Real estate, commodities, and currencies 05:47 Annuities and income tradeoffs 06:13 Three questions for retirees 06:33 Preparing for withdrawals during a market decline 06:47 The higher rate paradox 07:15 When to review your retirement plan Educational information only. This video is not individualized investment, tax, or legal advice. Investing involves risk, including possible loss of principal. Bond prices generally fall when market interest rates rise; individual results depend on the investment and whether it is sold before maturity. Annuity features, costs, and guarantees vary by contract, and guarantees depend on the issuing insurer’s claims paying ability. Past performance does not predict future results. Consult appropriate professionals about your circumstances. #RetirementPlanning #InterestRates #StockTalk

Investors' higher interest rates can make some investments worth less. That isn't worth less money, not worthless in total, while potentially increasing the income available for certain new investments. Those two things sounds like they shouldn't happen at the same time, but they can. Because when interest rates rise, the value of future cash flows generally falls. That could put pressure on the value of some existing assets, while potentially increasing the income available from newly purchased interest-bearing investments. On Tuesday night, I sat down with Troy and Charles for discussion on higher interest rates and what they mean for your money.

Here's a link to the replay of the Oak Harvest Live Stream on the topic last Tuesday in case you missed it. We tried to cover a lot of topics, stocks, bonds, real estate, commodities, currencies, annuities, and even retirement planning. Hopefully we got them all in. One idea tied almost everything together. Today, I want to focus on one question. Are higher interest rates a threat to your retirement portfolio? or could they also create an opportunity? Here's something we stress during our live stream.

The Federal Reserve usually does not directly control the 10-year treasury yield. The Fed has powerful influence over short-term interest rates, but longer-term rates are set mainly by the market. And the market is constantly asking two questions. First, what will inflation be? And what return will investors need after inflation? Think of the 10-year treasury rate as having two major pieces. Real interest rates plus expected inflation. Knowing which piece is rising can tell a lot.

If real rates rise because the economy is strong, that can be good for corporate earnings, but tougher on expensive investments. Inflation's expectations rise, commodities, and some real assets may benefit, but consumers lose purchasing power and bonds can struggle. Let's start with the asset that has the clearest relationship with interest rates. That's bonds. When interest rates rise, the price of an existing bond, normally falls. And generally, the longer the bond, the bigger the price move. That's the bad news. But here's the good news for retirees. After that adjustment, new bonds offer higher income. For years, retirees complained that bonds and cash paid almost nothing. Higher interest rates can change that.

You may now be able to earn more income without taking as much stock market risk. That can affect everything from your bond ladder to your withdrawal plan. This is one of the most important parts of our roundtable. Higher rates generally mean lower PE ratios. Why? Because a dollar profit expected 10 years from now is worth less today when investors can earn a higher rate of return someplace else. That's especially important for gross stocks where much of the expected profit may be years into the future. But there's a huge catch. Earnings can beat the interest rate headwind. We've seen this movie before. From 1995 through 1999, the S&P 500 produced five straight years, of very strong positive returns.

Interest rates moved around and rose sharply during parts of that period. That stocks kept climbing. Why? Two big reasons. Earnings were growing and productivity was improving. Computers, software, networking, and the internet allowed businesses to do more with less.

Today, we're asking a similar question around artificial intelligence. Chet GPT launched in late 2022. Since then, companies have spent enormous amounts on AI chips, data centers, software, and power infrastructure. The big question isn't simply whether AI stocks have gone up. It's, will all that AI spending eventually make the overall economy more productive? If artificial intelligence drives faster productivity and faster earnings growth,

stocks may be able to absorb higher interest rates just as they did during parts of the late 1990s. If earnings disappoint and real interest rates remain high, then high stock valuations become harder to defend. We already saw why earnings mattered earlier this year. Faxset reported that 84% of the S&P 500 companies reported first quarter results beating earnings estimates. While first quarter earnings growth reached 27.7%, second quarter earnings was even higher,

but it did include some one-time gains. Here's a simple calculations we discuss that can help explain this relationship. Think of it this way. If treasury yields 4%, $100 invested produces about $4 a year. Flip that around, and you're paying about $25 for every dollar of income. Now look at a stock. If a company earns $1 per share and the stock trades at $25,

investors are paying about 25 times earnings. If a treasury yields rise to 6%, an investor may ask, why should I pay $25 for a dollar of uncertain corporate earnings when I can earn a higher yield from treasuries? can make investors less willing to pay high valuations for stocks. But be careful. This is not a stock market fair value model. The Treasury bond doesn't have earnings growth. A company does. Companies can raise prices, improve margins, invent new products, and grow profits. That's why earnings growth and productivity matters so much. Earnings need to keep delivering. This same interest

rate story moves through the rest of your portfolio. Real estate, higher mortgage rates and higher cap rates reduce property values. Higher leverage properties can feel it first. But inflation may also push up rents and replacement costs higher. Commodities and gold here. Why rates rise become especially important. Higher inflation expectations can help commodities. Higher real interest rates can hurt gold because investors have better paying alternatives and insurance and inventory carrying costs hurt them. Currencies, don't just look at U.S. rates. Look at U.S. rates compared with every other country. Higher relative U.S. real rates can attract money into the dollar and then we have annuities. This is another place where higher rates can actually help

retirees. Insurance companies can invest at higher yields, which can improve the economics behind some newly issued fixed and income annuities. But there's a trade-off. A guaranteed payment may provide income stability while inflation can slowly reduce what that fixed payment actually buys. So once again, higher rates can create both risks and opportunities. After our discussion, I came away with three question retirees should be out. First, income. Bonds and cash now provide better yields. Do you need to take as much stock market risk to fund your retirement? Second, asset allocation. If the return available from safer assets has increased, does your old stock and bond mix still makes sense? And third and finally, the one thing I think retirees sometimes overlook, sequence risk.

If stocks fall 20%, do you have enough cash in short-term bonds that you won't be forced to sell stocks at the wrong time? That's where this entire discussion comes together. Higher rates reduce the present value of many assets you already own, but higher rates also increase the future return available a newly invested money. That creates what I call the higher rate paradox. For retirees, higher rates aren't automatically good, and they aren't automatically bad.

The real question is whether your portfolio is built to survive the transition, and then take advantage of the opportunities on the other side. That's the part of the interest rate story that matters most to your retirement. So if higher interest rates have changed the income available from bonds and cash, change stock valuations, and change the tradeoffs inside your retirement plan, this may be a good time to ask whether your plan still fits the environment we're currently in today. If you're not sure, give Ocarbos a call. We can take a look at how your investments, income strategy, taxes, and risk management are working together

and help you identify where your plan may need a closer look. Because the goal isn't to predict exactly where interest rates are going next, interest rates are going next, it's to build a retirement plan that can adapt if they move higher, lower, or somewhere in between. Call Oak Harvest Financial Group to schedule your retirement plan review. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice. Strategies and ideas discussed may not be

right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss and past performance is not indicative of future results.