PreMarket Prep Talks Interest Rates And The TLT ETF

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

The Federal Reserve Bank stayed the course with its dovish stance last week and the Street is having none of it. Just by observing the price action of the financials and related interest rate sensitive ETFs, inflation is alive and well and interest rates are going to be going up sooner rather than later.

One of the best gauges for the future direction of interest rates is the iShares 20+ Yr Treasury Bond ETF TLT. Its price action since the Federal Reserve Bank’s actions last week make it the focus for Monday’s PreMarket Prep Stock of the Day.

TLT Defined: One important tenet of long-term investing is to determine the long-term direction of interest rates. The reason behind the future direction of interest rates has a different impact on certain sectors of the market and the market on the whole. 

Simply stated, the ETF is one of the instruments used to determine if interest rates are going to rise or fall in the future, If the economy is weak, the Fed will try to stimulate economic growth by keeping interest rates low. 

On the other hand, if the economy is overheating and inflation is increasing, the Fed will raise interest rates to temper to combat inflationary pressures.

Blow-Off Top In March 2020: Interest rates had been moving lower for years, which is bullish for TLT, when the Federal Reserve Bank opened the spigots in March 2020 to combat the detrimental effects of the pandemic on the U.S. economy. The TLT spiked to $179.70 in late March 2020 and has never come close to revisiting that high.

Street Not Buying What Fed Is Saying: As evidenced by the long-term chart of the TLT, the Street is convinced the Federal Reserve Bank has pumped too much money into the economy and has created an inflationary environment.  

Although inflation is still running at 2% by their measurements, consumers are feeling the pinch in their day-to-day spending, For example, higher prices from energy (gasoline prices), food and staples, and perhaps most importantly commodity prices such as lumber, which is vital to the housing market, are eroding consumer purchasing power.

PreMarket Prep's Take On Interest Rates: Co-host Dennis Dick explained in detail what the recent price action in the TLT is implying and how investors may want to adjust their portfolios for the eventual rise in interest rates.

The full discussion on the TLT from Monday’s show can be found here: