Historical Data Shows Rising Rates and Equities Can Coexist When Earnings Growth Supports the Rally

The Quick Take

• FAZ Finanzen analysis challenges the consensus view that rising interest rates necessarily derail equity market rallies, citing historical German and European market data.
• The article argues that the Iran war and rising rates have dominated market commentary but that historical precedent shows equities and rate increases are not inherently contradictory.
• Earnings growth quality, not interest rate direction alone, determines whether equity markets can sustain an uptrend in a tightening environment.

FAZ Finanzen published a historical analysis challenging the widespread investor narrative that rising interest rates and equity market strength are mutually exclusive. The article notes that nearly every market commentary in the current environment cites either the Iran war or rising interest rates as reasons for caution — yet historical Borse data shows that equities have regularly advanced during rate-hiking cycles when corporate earnings growth was sufficiently strong. This context is particularly relevant for the German and European equity market, which is navigating ECB tightening while simultaneously facing geopolitical uncertainty from the Iran conflict's impact on energy prices and defence spending.

The investment implication of the FAZ analysis is a sector-level rotation argument rather than a simple buy or sell signal. Companies with strong earnings momentum — particularly in industrials, financials benefiting from higher net interest margins, and export-oriented manufacturers with pricing power — have historically delivered positive real returns even as government bond yields rose. Conversely, rate-sensitive sectors such as real estate investment trusts, regulated utilities, and high-dividend consumer staples companies face valuation compression when discount rates rise, regardless of the broader market trajectory. The analysis supports maintaining equity exposure in rising rate environments while tilting toward earnings-growth sectors and away from duration-heavy bond proxies.

Investors should monitor the trajectory of Q3 2026 European corporate earnings to determine whether the earnings-growth precondition for the historical thesis is being met in the current cycle. DAX earnings revisions by major German corporates in October will provide the clearest signal, alongside any ECB communication on the pace of further tightening. The Iran war geopolitical premium is harder to quantify but adds a tail risk that historical data cannot fully capture, making scenario analysis around energy price scenarios important for European equity positioning in Q4 2026.

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