Indiana Trust Wealth Management
Investment Advisory Services
by Clayton T. Bill, CFA
Vice President, Director of Investment Advisory Services

  • The U.S. equity market, represented by the S&P 500 index, fell 2% this week.
  • Real interest rates – which subtract inflation from the nominal rate – are elevated relative to the last twenty years. This may not be a problem for equities.

Economists and investors closely watch the movements of real interest rates. Real interest rates are viewed as a key driver of decisions on saving and investing. What makes interest rates “real” is that inflation is subtracted from the “nominal” rate. The mainstream belief is that high real rates should crimp economic activity and subdue equity market valuations.

Bespoke Investment Group noted this week that real rates are near a 20-year high, as measured by a type of bond – Treasury Inflation Protected Securities, or “TIPS” – that is a loose proxy for real rates.


Source: Bespoke Investment Group, June 24, 2026

Stocks that have expected earnings growth well into the future, such as tech stocks, are often viewed as more negatively exposed to rising real interest rates. Their real cost of capital is rising, and future profits may be dented by slowing economic activity.

In the very recent past, notably in 2022 when interest rates spiked, markets did indeed shudder. However, the fears of collapsing economic growth did not materialize, and stocks rebounded quickly. Higher rates did not drag down equity valuations.

Bespoke notes that this was also true for tech firms during the dot-com bubble around the turn of the millennium. In fact, real interest rates and tech stock valuations were positively correlated during the bubble’s formation.


Source: Bespoke Investment Group, June 24, 2026

Bloomberg’s economics team reported on Tuesday that based on an analysis of corporate earnings calls, more than two-thirds of industries are reporting accelerating growth. Rising real interest rates may have a more ambiguous impact on business and consumer behavior than the consensus believes.

Editor’s note: The weekly update returns in mid-July.

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