Maybe High Interest Rates Aren't So Bad

Plus, bank-fintech partnerships are under strain.

Number of the Week: 39.29% (explanation below)

Maybe High Interest Rates Aren’t So Bad

Unless December is an unprecedented disaster, 2023 will go down as a great year for the U.S. stock markets, particularly in comparison to the doldrums of 2022. As of this writing, the S&P 500 is up 18% this year, and the Nasdaq an even more robust 36%.

Much of this performance reflects macroeconomic health; the American economy did not go into recession, as many had predicted late last year and in the first half of this year, and unemployment remains near historic lows. Inflation still exists, but not at the level of 12 months ago.

One fascinating aspect of markets is that they don’t always play out the way one might predict from macro effects (if they did, then lots of people could get very rich all the time). This week, The Wall Street Journal columnist James Mackintosh published a column about the markets’ “wild overreaction to some good inflation figures.” His basic message about current markets can be summarized as “what goes up might come down,” but the disconnect between the macro numbers and stock performance has a few interesting echoes in the companies that FIN covers.

Take, for example, the Buy Now, Pay Later (BNPL) industry. This well-capitalized sector continues to grow globally, but there have long been questions about whether the companies that specialize in BNPL can ever make a profit. When the U.S. Federal Reserve Bank began a series of rapid interest-rate rises designed to combat inflation, these doubts seemed to amplify, because the rises implied that it would cost these companies more to raise money.