As Interest Rates Rise, Investors to Leave Bonds in Favor of Stocks

As an economic recovery gains steam, investors may once again be willing to take more risks. One of the first signs? Some on Wall Street are anticipating that rising interest rates could send investors out of bonds and back into stocks.

Interest rates will gradually rise from rock bottom levels, Cort Gwon, director of trading strategies for FBN Securities tells Daily Finance. As that happens, investors who piled up bonds following the financial meltdown will start to seek higher rates of return, and those willing to take on more risk in exchange for higher potential returns may turn to stocks, Gwon says.

"Money over the next year or so will come out of fixed income [markets] and move to these other areas," Gwon says.



Stocks Rallying

Stocks are already at 18-month highs, but Gwon anticipates a further rally.

A bright financial outlook for companies should drive prices higher, he says. Companies are delivering strong bottom line and top line results, Gwon notes.

They also have massive amounts of cash on hand. According to Gwon, "All of the factors for a long-term rally are in place."