Why is the Nikkei strong? The mechanism behind 'rising stock prices despite rising interest rates'
Introduction
“Don’t stock prices fall when interest rates rise?”
If you are new to investing, you might think so.
However, something a bit strange is happening in the current market.
In the U.S., while long-term interest rates are rising and the Dow Jones is falling, capital is flowing back into AI and semiconductor stocks.
And in Japan—
The Nikkei Stock Average has risen to the 66,000 yen level.
On September 25, the Nikkei rose 850 yen from the previous day, marking its fifth consecutive day of gains. In addition to AI and semiconductor-related stocks, bank stocks are also rising.
“Why are stocks rising even though interest rates are going up?”
There is an important hint here for understanding the current stock market.
In fact, the current market is driven by three major themes moving simultaneously:
“Interest rates,”
“AI/Semiconductors,”
“Banks”
are all in play.
In this article, I will explain
“what is happening in the stock market right now”
in a way that even beginners can understand, using as little technical jargon as possible.
First, the conclusion: the current market is becoming increasingly ‘polarized’.
When looking at the current stock market, the following three points are important:
1. In the U.S., ‘rising interest rates’ are weighing on stock prices.
2. Even so, capital is returning to AI and semiconductor stocks.
③ In Japan, ‘AI/semiconductors’ and ‘banks’ are being bought at the same time
Understanding these three points makes the recent strength of the Nikkei Stock Average much easier to grasp.
① ‘Interest rates’ are a major theme in the United States
First, let’s look at the U.S.
Currently, long-term interest rates are rising significantly in the U.S.
When interest rates rise, the cost for companies and individuals to borrow money increases.
Furthermore, in stock investing,
‘Wouldn’t it be better to hold safe assets that earn interest rather than stocks?’
This kind of judgment emerges.
Therefore, generally speaking, rising interest rates tend to be a headwind for the stock market.
In fact, the NY Dow fell for four consecutive weeks in the U.S.
On the other hand, this is the interesting part of the current market.
② ‘AI/semiconductors’ are being bought again after being sold off
Despite rising interest rates, funds are flowing back into AI and semiconductor-related stocks.
The Nasdaq has risen, and the SOX index, which shows the movement of AI and semiconductor-related stocks, has also rebounded significantly.
Why is that?
The biggest reason is that
‘the growth potential of AI-related companies will not easily disappear just because of rising interest rates’
is what market participants believe.
The massive investment in AI is not just a temporary boom, but has the potential to change corporate competitiveness and IT infrastructure itself.
Therefore,
‘Sell all AI stocks because interest rates are high’
is not the trend; instead,
‘buy back AI and semiconductor stocks that were once sold, due to growth expectations’
is the movement that is emerging.
This is an important point to consider when thinking about the future of the stock market.
3. That trend is also spreading to Japanese stocks
When US AI and semiconductor stocks rise, it also affects the Japanese market.
Representative examples are
-
Tokyo Electron
-
Advantest
-
Ibiden
and other semiconductor-related stocks.
When such large-cap stocks rise significantly, the Nikkei average is also pushed up.
In fact, this week,
Nikkei Average: +2.1%
was recorded.
On the other hand,
TOPIX: +0.9%
.
Looking at this difference,
‘Japanese stocks as a whole are rising evenly’
rather than that,
large-cap AI and semiconductor-related stocks are strongly pushing up the Nikkei 225
a structure becomes visible.
This is also the reason why it is said that the recent Nikkei 225 is becoming more susceptible to the influence of the US Nasdaq and semiconductor markets.
4. Another protagonist is ‘bank stocks’
And another thing to pay attention to is bank stocks.
Long-term interest rates are also rising in Japan.
Domestic long-term interest rates have risen to a level exceeding 3%, the highest level since the 1990s.
‘Isn’t it bad for stocks if interest rates rise?’
You might think so.
However, it is not necessarily bad news for banks.
Simply put, banking is a
‘lending money and receiving interest’
business.
When the interest rate environment changes, the profit environment for banks also changes.
Therefore,
rising interest rates → attention on bank stocks
a trend is emerging.
This point is extremely important.
Even with a single piece of news like ‘rising interest rates’,
-
AI companies
-
high-tech companies
-
banks
-
real estate
-
growth stocks
are all affected differently.
That is precisely why, when looking at the market,
‘stocks are bad because interest rates rose’
it is important not to lump them all together.
5. The Middle East situation is also a ‘factor that moves stock prices’
Another factor that cannot be ignored is the situation in the Middle East.
When geopolitical tensions rise, crude oil prices tend to increase.
If crude oil prices rise,
corporate energy costs increase
↓
prices rise
↓
inflation concerns intensify
↓
central banks find it harder to lower interest rates
a chain reaction like this can occur.
Conversely, if expectations for a ceasefire or diplomatic negotiations rise, crude oil prices can fall.
In fact, this time as well, crude oil prices fell significantly due to expectations for talks between the U.S. and Iran.
However, geopolitical risk is not something that can be easily judged as ‘resolved’.
Therefore,
‘how crude oil prices will move in the future’
remains an important checkpoint for observing the stock market.
6. Stock prices do not fall indefinitely even when ‘bad news’ emerges
There is another interesting point to understand about the current market.
When a major event occurs,
‘stock prices will keep falling because bad news has come out’
is not necessarily true.
In the market, after bad news occurs,
1. It is sold off first
2. It prices in the worst-case scenario
3. Stock prices hit bottom
4. Stock prices begin to recover even if the situation does not improve
can happen.
In other words,
you need to look not only at ‘whether the news is bad’ but also at ‘to what extent stock prices have already priced in that news’
.
This is a way of thinking that I would like investment beginners to keep in mind.
7. ‘Stock prices’ and ‘news’ do not always move in the same direction
For example,
‘the war is continuing’
‘interest rates are rising’
‘the economy might get worse’
Suppose such news is released.
Normally, one would think,
‘Then stock prices will fall.’
That is what one would think.
However, in the actual market, that is not always the case.
This is because stock prices move by discounting
the expectations of market participants regarding ‘what will happen in the future’
in advance, rather than ‘current news’.
Therefore,
Bad news is released
↓
Stock prices fall
↓
The market discounts the bad news
↓
It is judged to be ‘not as bad as expected’
↓
Stock prices rebound
This kind of sequence can also occur.
Especially for those who have just started investing,
remembering that ‘news does not equal stock price’
will change your perspective on the market.
⑧ The three points to watch from now on are ‘Interest Rates, AI, and Banks’
So, what should you check when looking at Japanese stocks from now on?
I believe that just following the next three points is sufficient.
1. U.S. long-term interest rates
Will they continue to rise, or will they peak out?
This affects not only U.S. stocks but also Japanese high-tech stocks.
2. AI and semiconductor stocks
How the Nasdaq and the SOX index move.
And how Japanese semiconductor-related stocks react to that.
This is important when looking at the Nikkei 225.
3. Japanese interest rates and bank stocks
The Bank of Japan’s monetary policy and domestic long-term interest rates.
And how bank stocks are reacting to that.
If you look at these three as a set, it becomes much easier to understand the current market trend.
Finally—thinking about ‘the reason why stock prices are rising’
In stock investment,
‘The Nikkei 225 rose by 500 yen today’
If you only look at that fact, your investment skills will not easily improve.
What is important is
to think about ‘why did it rise?’
to consider.
In this case,
Rising US interest rates
↓
Headwinds for US stocks as a whole
↓
However, capital is returning to AI and semiconductor stocks
↓
Nasdaq and SOX index rise
↓
Buying also occurs in Japanese semiconductor-related stocks
↓
Pushing up the Nikkei 225
Furthermore,
Rising Japanese interest rates
↓
Attention on bank stocks
↓
Bank stocks also rise
Multiple trends like this are occurring simultaneously.
In other words, the current market is
a market that cannot be explained by the single factor of ‘rising interest rates’ alone
.
What is important in investing is not to predict the future perfectly.
It is to observe
‘where the money in the market is heading right now’.
Look at the news.
Look at interest rates.
Look at stock prices.
And then,
‘how are these three connected?’
try thinking about that.
Just making this a habit will significantly change how you see the stock market.
[Essential Guide] 3 numbers you should check every week
Finally, there is something I would like everyone who read this article to keep in mind.
A lot of news flows through the stock market every day.
‘The economy is bad’
‘A war has started’
‘Interest rates have risen’
‘AI is amazing’
‘Corporate earnings were good’
If you try to chase all the news, there is too much information, and you will end up not knowing what to look at.
Therefore, first try to make it a habit to look at only the following three things.
1. US long-term interest rates
Are interest rates rising or falling?
This is an important figure for gauging the overall ‘mood’ of the stock market.
2. Nasdaq and SOX Index
Is money flowing into AI and semiconductor-related stocks, or is it fleeing?
This also serves as a reference when looking at Japanese semiconductor stocks.
3. Nikkei Stock Average and TOPIX
Do not look only at the Nikkei Stock Average; look at the TOPIX as well.
Even just doing this,
gives you a hint to consider whether
‘only a few large-cap stocks are rising’
or ‘the entire Japanese stock market is rising’.
In stock investment, ‘observation’ is more important than ‘prediction’.
When you start investing in stocks,
you want to know the answers to questions like,
‘Will the Nikkei Stock Average go up from here?’
or ‘Should I buy this stock?’
Of course, that is also important.
However, if you want to continue investing for a long time, what you should acquire before that is
the ability to think for yourself about what is happening in the market
.
Look at interest rates.
Look at stock prices.
Look at companies.
And then,
‘Why is this money flowing here?’
Think about that.
Once you acquire this habit, the way you see the news will change significantly.
The current market is not simply
‘Japanese stocks are strong’.
It is more than that.
Behind the scenes,
interest rates, AI, semiconductors, banks, exchange rates, and crude oil
are all moving in complex ways.
Stock investment is not a game of perfectly predicting the future.
‘I believe it is a game of understanding what is happening in the market now and thinking about what could happen next.’
That is what I think.
I hope this article provides a ‘new perspective’ for you when you watch the news.