Ken Fisher on Interest Rates, Global Diversification, Overblown Market Fears and More

In this mailbag segment, Ken Fisher tackles four key investor questions with nuanced explanations. First, on interest rates and stocks, Fisher explains that while rising rates make bonds more competitive with stocks, the more significant mechanism is banks' lending behavior—driven by the spread between long-term and short-term rates. When this spread widens, banks lend more eagerly, fueling economic activity and stock gains; when it narrows, lending constricts and stocks suffer. Importantly, he notes that rising long-term rates paired with low short-term rates can actually be bullish for stocks despite conventional wisdom. Second, on international diversification, Fisher argues it remains essential despite the S&P 500 deriving 40% of revenue globally, because stocks behave far more like their home country's market than like other global stocks. This occurs because companies are governed by their home country's laws, primarily traded by domestic investors, staffed largely by their country's workers, and remain culturally rooted in their origin nation. Third, Fisher clarifies that stocks are forward-looking, meaning they pre-price economic realities 3 to 30 months ahead based on discounted future earnings rather than current conditions. This forward-looking mechanism explains why AI is currently priced into markets despite being years from full implementation. Finally, Fisher identifies AI fears as the most overblown concern, arguing that like all technological innovations, AI will create both problems and benefits, and society will absorb it slower than both proponents and critics expect. He also notes that midterm election fears are similarly overblown, citing a 20-year pattern where such political anxieties dissipate once elections conclude.