Macro for stock investors: rates, bonds and economic data
Companies don’t exist in a vacuum. Interest rates, inflation and growth change both the profits a company makes and the price investors will pay for them.
Bonds and yields
A government bond pays fixed interest until it matures. Its yield is the return you get buying it at today’s price. If rates rise, new bonds pay more, so existing bonds fall in price until their yield matches. That’s why prices and yields move in opposite directions.
Why yields drive stocks
- The discount rate. A share is worth its future cash flows discounted back to today. Higher yields shrink the present value, hitting companies whose profits are far in the future (growth and tech) hardest.
- Competition for money. If a 10-year gilt or Treasury pays 4-5% risk-free, stocks need to offer more to compensate for their risk. The gap is the equity risk premium.
- Cost of debt. Higher rates raise interest costs and refinancing risk, especially for indebted companies.
The yield curve
Plotting yields from short to long maturities gives the yield curve. Normally long rates are higher. When short rates rise above long rates (an inverted curve), markets expect cuts ahead, and historically this has often preceded recessions, though the timing is unreliable.
The economic calendar
| Release | Why stocks care |
|---|---|
| CPI (inflation) | Drives rate expectations. Hot inflation usually means higher rates for longer. |
| Jobs (NFP, unemployment) | A read on the economy and on wage pressure. |
| GDP | Overall growth, but it is backward-looking and revised. |
| PMIs | Surveys of purchasing managers. Early signal of turns in activity. |
| Central bank decisions | Set the price of money. The statement and guidance often matter more than the move. |
| Retail sales | Consumer spending, the largest part of most developed economies. |
What moves markets is the surprise versus expectations, not the number itself. A strong jobs report can send stocks down if it pushes rate-cut hopes further away.
Combining macro and fundamentals
Macro sets the tide, fundamentals decide which boats float. A great company bought at a high multiple can still fall if rates rise sharply. Understanding both is how you tell whether a move is about the business or the backdrop.
Educational content only, not financial advice. Investing involves risk and you can lose money.