Rise of an Empire: Will Rising Interest Rates Hit the Stock Market?

When 300, the 2007 flick featuring Spartans warring with Xerxes’ Persia, it took in more than $450 million at the global box office. So the only surprise is that it took seven years for a sequel, 300: Rise of an Empire, to hit theaters. The film doesn’t deviate from its predecessor in any serious ways–it still features “sustained sequences of stylized, bloody violence; a sex scene; and some strong language,” according to the New York Times, or as they put it in the review for 300, “Much butchery, some lechery“–only this time with loads of boats and Eva Green. If all goes as predicted, 300: Rise of an Empire should take in $40 million, according to Box Office Mojo.

Warner Bros./Everett

While the markets might not have to face anything quite as daunting as Xerxes’ army, they do have their own problems to worry about, like what the heck is going on with Fed policy. Today, the Labor Department said that the US economy added 175,000 jobs in February, far more than the 125,00 forecast by economists.  Then an article by the Wall Street Journal’s John Hilsenrath appeared that suggested that the report was good enough for the Fed to keep tapering and maybe even modify its forward guidance. And that became the story. Societe Generale’s Sebastien Galy explains:

The open question has always been what part of Hilsenrath’s work for the WSJ was analysis and what part came from the Fed. Some buy side been kind enough to suggest to me that based on their Fed contacts, the latter was quite significant for a while. Having been kindly invited to a WSJ event with Hilsenrath and Dudley, I was told by some senior gent that Hilsenrath has a “good relation” with Yellen. Seeing him work with Dudley, I don’t doubt it.

Still, the S&P 500 managed to eke out at a 0.1%  gain today to close the week up 1% at 1,878.04–a new record high. The Dow Jones Industrial Average gained 0.2% to 16,452.72 today, and finished the week up 0.8%.

Strategas Research Partners’ Jason DeSena Trennert considers what could go wrong for the stock market:

In a word, we believe it could be inflation. With the Fed quintupling the size of its balance sheet since 2007, it doesn't take an overly active imagination to wonder when higher aggregate price levels and the higher interest rates they will bring will start to compete with stocks. If only because higher inflation appears to be a policy goal of the Fed it seems safe to assume that this is a question with which market participants will need to wrestle in the future…But our best guess is that the challenge of higher rates and inflation is sufficiently far off into the future – perhaps two years or more – as to pose little challenge to the potential for earnings multiples to expand even further from the current levels that make so many of us feel uncomfortable.

The S&P 500 was led higher by Valero Energy (VLO), which rose 10% to $52.99, and Lorillard (LO), which gained 8% to $52.99 on speculation it would be taken over by. The Dow’s big winners included Goldman Sachs (GS), which advanced 4.7% to $174.26 after it named Apple’s (AAPL) CFO to its board, and JPMorgan Chase (JPM), which climbed 4.5% to $59.40.