Can Stock Prices Withstand the US Interest Rate 5% Era? "Rather Raise it in September" | Shinhan Securities Dr. Kim Hyojin

Summary

Dr. Kim Hyo-jin from Shinhan Securities argues that U.S. 10-year Treasury yields can rise to 5% because the Taylor Rule implies a 5.1% appropriate rate. She contends that a well-flagged early September Fed hike would ultimately be better for equities than delayed aggressive hikes, even if markets initially flinch. Korean equities historically held up well in early hiking cycles, while delayed hikes alongside rising oil would make her reduce equity exposure.

• U.S. 10-year Treasury yields are around 4.8% and may test 5%; the Taylor Rule Q3 estimate is 5.1%.
• Treasury intervention may cap sharp yield spikes but cannot clearly turn yields lower.
• Past mid-2000s and mid-2010s hiking cycles show equities digest early rate hikes and recover.
• The 2022-2023 cycle is the negative comparison because the Fed delayed and then hiked rapidly amid unknown inflation.
• Korean equities were top-tier in earlier rate hike cycles, while KOSPI suffered badly in 2022-2023.
• Fiscal consolidation is seen as implausible; the U.S. may instead use institutional or regulatory changes.
• If oil turns unfavorable and the Fed keeps delaying hikes, she would reduce equity exposure.