Rising rates of interest pose the largest menace to the present bull market, in response to Piper Sandler. In a Thursday notice, the funding agency appeared on the important catalysts which have resulted in 27 S & P 500 corrections of 10% or extra over the previous 60 years. Chief funding strategist Michael Kantrowitz recognized three main dangers: rising rates of interest, worsening unemployment and unexpected world shocks. The chart beneath depicts each market correction of 10% or extra for the S & P 500 since 1964. The three columns titled “larger charges,” “job losses” and “world shocks” denote the contributing danger elements for every pullback. Charge-driven market pullbacks have traditionally been the most typical kind of correction, though Kantrowitz famous that their frequency waned within the post-International Monetary Disaster world of zero rates of interest. However as inflation has lingered at larger ranges following the Covid-19 pandemic, rising charges are once more the first menace to equities, suggesting a possible 10% correction might be within the offing. Catalysts that might push charges larger this yr embrace sticky inflation and employment surprises, whereas President Donald Trump’s tariff insurance policies might additional add to volatility, Kantrowitz mentioned. “Our expectation is that charges might be unstable and rangebound within the 4%-5% vary this yr,” the strategist mentioned, including that “4.5% has been a threshold stage the place equities have been uncomfortable with charges rising. The upper charges climb above 4.5%, the extra potential fairness draw back. When charges had been decrease, markets might tolerate a rise in charges, however provided that we’re already at uncomfortably excessive ranges, there is no wiggle room for charges to rise.” On the flip aspect, the strategist highlighted that the “sharpest and longest fairness downturns” have usually accompanied employment-driven corrections. Whereas rate-driven pullbacks have by far been the most typical, they’ve additionally led to much less extreme declines over a shorter time period. The third kind of pullback, ensuing from world points, has averaged round a 15% drawdown and is the shortest in period.