Since 2021, our message about interest rates has been clear: rates move in long term cycles, elevated rates are here to stay, and this environment requires a completely different playbook than the one needed over the last 40 years of falling rates.
This is not an opinion or prediction about the future, it’s what we see in the charts and it’s happening right now. These aren’t small, temporary moves. They’re clear structural breaks of long-term trends. This information is usually met with little reaction. Another bit of bad news that can be shrugged off. The market has rewarded this exact kind of indifference for pause 40 years?
Rates are not another data point that the market can shrug off. Rate cycles are the tectonic plates beneath the entire financial system, and when they shift, everything built on top must be reassessed or risk collapse.
Boomers and Gen Xers have experienced a falling rate environment for nearly their entire adult lives. This has shaped nearly all common assumptions and trends that investors believe to be true today. The idea that this familiar framework is shifting requires rewiring decades of cognitive biases and reinforcement. In a moment like this, you must ask yourself: do you want to be right, or do you want to win? They are different questions. Most won’t adapt until the market forces them to.
The chart below presents over 100 years of interest rate data. Rates have clearly broken out from the 40-year downtrend that existed from 1982 to 2022 and pushed upwards through the ten-year moving average with force. If you think yields revisit 2% any time soon, you’re effectively betting against 100 years of rate cycle precedent.
US 10 Year Yield
But why does this really matter? Think of interest rates like the gravitational force acting on every asset you own. For 40 years, that gravity weakened and asset prices floated higher. Stocks, bonds, and real estate all benefited greatly.
Those decades imprinted deeply on investors. Buy the dip, own the index, hold forever, never try to time the market, add bonds as you age. It’s beyond a strategy at this point; it’s the entire game. It’s what every advisor at every major firm is trained to repeat, and the most common advice you hear from all successful investors, gurus, and financial media.
If you’re wondering why this shift isn’t talked about more, it’s because the entire industry relies on models calibrated for falling rates. To clarify, we don’t have anything against this approach to investing; it’s just the best strategy for a one-way interest rate street. That street now has two-way traffic and no guardrails.
A rising or elevated rate environment looks entirely different. Gravity works in reverse, pulling asset prices back down to reality. Almost every major asset becomes harder to own, harder to grow, and less predictable.
The next chart shows the value the S&P 500 index relative to interest rates (the 10-year treasury yield) from 1963 to present. For example, if the S&P 500 is valued at 6000 and the 10-year yield is at 4%, the chart would show 1500. So, as stocks rise and rates decline, the chart has an upward trajectory.
S&P 500 / Interest Rate Ratio
For 40 years this chart followed a steady upward trend even through difficult periods like Black Monday, the dotcom bubble, and the global financial crisis. Why? Because the knee jerk reaction to every crisis was to cut rates and print more money. We see a clear blow off the top in 2020 as rates bottomed in response to the pandemic while stocks went vertical. Now, this relationship has broken down below both the 40-year trend line and 10 year moving average into new territory, another clear regime shift signal.
This isn’t a doomsday call. It’s a call to change your playbook before the market forces you to. We’re also not saying that rates automatically go higher from here. President Trump along with various other entities are aggressively pressuring the Fed to cut rates, and they may eventually get their way. But that would be a political decision, not a structural fix, and it won’t bring back the conditions that shaped the last 40 years.
At Incline, our playbook looks something like this:
- Active risk management to help protect against large losses. An approach built by traders, not marketers.
- Dynamic exposure to US and international equity and bond markets that can dial risk up or down as conditions change.
- Exposure to real assets such as commodities, metals, and systematic trend strategies that historically thrive when interest rates and inflation run hot.
No playbook is perfect. But if we really are experiencing the early stages of a major regime shift as the charts suggest, sticking with yesterday’s strategy could be costly and stressful. A dynamic, risk managed plan doesn’t just give you a chance, it gives you an edge.