UBS: Don't Worry About Rising Interest Rates, Stocks Are Heading Higher

Jonathan Golub UBS Chief Equity StrategistJonathan Golub

Photo: Bloomberg TV

Recently, there has been a monster surge in Treasury rates.All things being equal, higher interest rates mean higher interest costs and that’s bad for corporate profits.

But things aren’t that simple.

UBS’s top strategist Jonathan Golub recently raised his year-end S&P 500 target to 1,475.  And despite rising rates, he’s sticking to his call.

“We believe that at current levels, a further rise in yields would signal more robust growth prospects, consistent with higher stock prices,” wrote Golub in a note to clients.

Furthermore, surging Treasury yields haven’t translated to a major increase in corporate debt costs.  From Golub’s note:

Our work indicates that stock multiples are currently anchored to non-investment grade (B) yields. More specifically, in recent years, stock multiples have responded to a combination of Treasury yields and credit spreads. Importantly, while 10-year yields have increased by 31 bps since month end, spreads have offset this by contracting 21 bps.

SEE ALSO: Wall Street’s Sharpest Minds Predict Where Stocks Are Heading In 2012 >

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.