Higher Interest Rates May Bring Higher Yields, Muted Stock Returns

Investors have enjoyed remarkable returns over the past few years, but higher interest rates may be on the horizon. According to data from Allspring, the S&P 500 provided a real return of more than 20% per year from 2023 through 2025.

However, with the Federal Reserve expected to raise its benchmark rate this week, investors may face at least one source of potential agita: higher interest rates. The market is pricing in a 90% likelihood that the federal funds rate will rise a quarter point following the central bank's meeting on Wednesday.

Higher interest rates can be beneficial for bond investors, as they increase yields on bonds. Lawrence Gillum, chief fixed income strategist for LPL Financial, notes that 'we think there is a lot of value in the fixed income market for those savers and investors that rely on a steady income.'