That’s why stock investors shouldn’t be afraid of rising interest rates.

Rising interest rates may set off alarms in the stock market, but strategists say be prepared, don’t be afraid.

For now, interest rates are rising with the idea that inflation will also rise.

But the alert now probably looks more like a smoke alarm and a burnt-out frying pan, rather than a burning house.

“This has less to do with the absolute level of yields and more with the speed with which it takes to get there and, at this point, we are not concerned with speed,” said Julian Emanuel, chief share and derivatives strategist at BTIG .

The most observed yield is that of the Treasury of 10 years of reference, which influences mortgages and other loans.

It was lower on Tuesday at 1.16%, after touching the key level of 1.2% on Monday. At that level, strategists say it would be going to 1.25%, which could launch another higher break. At the end of January, yield, which moves contrary to price, fell by 1%.

Bond professionals say yields are rising and rising for a variety of reasons.

A big factor is Covid’s fiscal stimulus, the $ 900 billion approved in December, and the $ 1.9 trillion plan now in progress in Congress.

Better growth is expected because of federal money, but this also results in more debt and, potentially, inflation. That is another reason for higher earnings.

BTIG’s Emanuel said he would be concerned if the 10-year yield started to rise. He expects to reach 1.7% by the end of the year.

However, if you move too quickly, stocks can reach a difficult point. For example, a danger zone would be around 1.34% if the 10-year yield reaches that level already this month.

“This would probably be a headline that would limit the upturn in the markets and cause a higher turnover of high-growth multiple stocks to cyclical and value values,” said Emanuel.

“Cyclicals, in particular, can absorb this type of rotation and keep the market oscillating,” he added. “The same speculative interest that the public has shown in technology stocks … it is entirely possible that at some point in 2021, you can obtain a degree of speculative fervor that you saw in these types, going into the financial.”

S&P’s financial sector has grown by around 6% since the beginning of the year.

Banks rose as the yield curve became more steep. This simply means that the difference between short-term rates, like the 2-year rate, and long-term rates, like the 10-year rate, has widened.

This so-called steeper curve helps banks make money, as they can borrow at very low short-term rates and lend at higher rates for longer periods.

Bank of America strategists say energy hardware and technology are among the expensive sectors that could be hurt by rising rates. Banks, diversified financial institutions and semiconductors are among the low-cost sectors that benefit from higher rates, they added.

But strategists say Treasury yields, while rising, are nowhere near the levels at which they compete with stocks for investment dollars.

Lori Calvasina, head of US equity strategy at RBC, said that there is no set level in the 10 years that is a negative trigger for stocks, but “3% seems to be where people in the past tended to worry.”

Calvasina said he tracks the number of companies in the S&P 500 that pay dividends over 10 years’ earnings. At the beginning of the year, 63% of S&P 500 companies had dividends above 10 years’ earnings and, several weeks later, were at 56%.

“If it drops to 20% or 30%, at that level the market can start fighting,” he said. If the market has no problems at that point, there will still be problems and investors will see less future returns.

The increase in the rate and inflation in trade is largely the rotation of cyclical values ​​that began in the second half of last year, when news about vaccines was positive and investors began to expect a more normal economy in 2021.

Inflation expectations have increased, but are still low.

The 10-year breakeven point, which is a market-based measure of inflation, was 2.20% on Tuesday, up from about 2.1% at the beginning of last week. This means that investors are betting that inflation will reach 2.2% in the next 10 years.

RBC’s Calvasina said that as rates rise and inflation expectations rise, investors should continue with the reflective trade.

Reflection trade is when investors bet on companies that will perform well when the economy improves and reopens. This includes airlines, financial and industrial companies.

Calvasina also said he likes the financial sector, but some investors have the misconception that parts of the reflective trade are already embedded.

Energy may rise more than 15% as oil prices soar this year, but other cyclical sectors, such as materials and industrials, have increased by only about 2% since the beginning of 2021.

The growth areas in technology and communications services could be used as a source of financing for the rotation, since they performed well, said Calvasina.

“As inflation expectations are rising, you tend to see the underperformance of technology, the underperformance of communication services.

Jonathan Golub, chief US equity strategist at Credit Suisse, says he does not expect the technology to suffer much as rates rise. But the stocks to be bought in this environment are among the “most useless”.

“I don’t think the technology is going to be stifled. I think the best way to look at it is who wins the most from an improving economy. The answer is cyclical companies … and companies that have a business problem,” he said. “You want someone who is on the brink, with less capitalization, companies that have a lot of debt.”

Golub also said that the increase in Treasury yields is also positive for the market, as it represents a recovering economy.

“The most exciting event in the history of the planet will not be the end of World War I, the end of World War II, it will be the reopening of the economy this summer,” he said.