Rising rates rattle Wall Street, but charts point to a stock bounce, technician says

Rates are on the rise and giving a scare to stock markets.

The yield on the 10-year Treasury note has risen above 3.2 percent, its highest level since May 2011, while the S&P 500 has fallen nearly 1 percent for the month.

But history suggests higher rates could soon give the stock market a lift, says Ari Wald, head of technical analysis at Oppenheimer.

"Low and rising interest rates are a sign of firming economic growth — good for stocks. High and falling, a sign of peak growth potentially abating, is bad for stocks," Wald told CNBC's "Trading Nation" on Monday.

Yields move inversely to bond prices. Climbing rates implies investor appetite for riskier assets over safe-haven fixed-income investments. A central bank hiking rates, as the Federal Reserve did in September, also indicates a growing economy and tightening labor market.

"When equities are correcting against a backdrop of rising interest rates, we view that as a bull market correction that should be bought," said Wald. "We saw similar action during the 2013 taper tantrum; we saw that in 2016 ahead of the November 2016 U.S. election."

During the taper tantrum in 2013, as the 10-year yield went from 1.6 percent to 3 percent, the S&P 500 rallied nearly 16 percent. Likewise, from July to December in 2016, yields rose to 2.6 percent and the S&P 500 increased close to 8 percent.

Gina Sanchez, CEO of Chantico Global, does not share Wald's optimism over the rising rates environment.

"Heads you lose, tails you lose with regard to interest rates," Sanchez told "Trading Nation" on Monday. "If the interest rate curve stays flat then you're looking at anemic growth. That's not good for equities in the long run. If interest rates rise, that means higher interest rate expenses, it means an end to 'borrow cheap and buy back stocks.'"

A flat yield curve is often seen as a warning sign of an economic slowdown. The curve flattens when the short-term 2-year Treasury yields closer to the longer-term 10-year note. This suggests bond investors are worried about the economic outlook.

A rising 10-year yield has steepened the yield curve since late August lows. However, it remains at a narrow 34 basis points.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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