Bill Miller, a former chief investment officer of Legg Mason Inc. (LM, Financial), said in a CNBC interview that stocks “should not have a problem” with rising interest rates as long as “inflation remains in check.”
Background
The Dow Jones Industrial Average tumbled over 650 points on Friday due to several factors, including fears from the rapid growth of the 10-year Treasury constant maturity rate, which reached a four-year high of 2.85% on the heels of a strong January jobs report. The 30-year rate also reached a new high.
Despite this, Miller said high interest rates can become “a tailwind for stocks,” based on the so-called “Taper Tantrum” in 2013. Miller said 2013 was “the only year when money went into U.S. equity funds since the financial crisis,” which contributed to a 30% rise in the stock market.
Miller warns key risk of financial health
Miller said in the interview that investors can get agitated during sharp declines in the stock market. However, the former Legg Mason CIO warned that earnings and cash flows will almost always keep growing even though we have occasional recessions. Miller underscores two key risks: the failure to understand that stocks will normally increase and being underinvested in long bull markets, including the bull market from 2010 to 2017.
See also
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Disclosure: No positions.
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