What 120 years tells us about interest rates and the stock market

Key points:

• Interest rates are one of nine primary factors that influence stock prices (the others are Valuation, Price Action, Inflation, the Economy, Breadth, Sentiment, Seasonality, and Insider activity) 
• At times, rate trends can have a significant and direct impact on the market, often for long periods of time
• However, at other times interest rates are a secondary consideration and may not have nearly as much bullish or bearish impact as many individuals have been led to believe
• We studied the relationship between Treasury yields and stock prices over the past 120+ years and the details of the results below

Using 10-year Treasury yield as a proxy for interest rates

For the record, there are lots of "interest rates." There are Treasury bill yields, Treasury Note yields, Long-term Treasury bond yields, various government agency yields, commercial paper yields, corporate bond yields (with various ratings from AAA to junk status), municipal bond yields, and a host of other rates related to various forms of debt. 

To make things as straightforward as possible, for this study, we will consider only two measures:

• The month-end yield on a 10-year Treasury note ($TNX)
• The month-end closing price for the Dow Jones Industrial Average

We will focus on these two because data is available going back to the begi