John Hussman runs a mid cap stock mutual fund (HSGFX) which he hedges with put options on both the Russell 2000 and S&P 500 indexes. The concept is that superior stock selection will beat the sector index averages over time and give us an even better risk/reward rating if the good stocks are bought and the average stocks are sold against them via puts. This is the basic stuff of long/short hedge funds. Hussman's bias is toward "value" stocks based upon standard, historic value analysis. And his record is decent, especially from 2000 to 2004 when hedging or not hedging made the real difference between victory and defeat if you were long.
Both camps in this issue are wrong, or "partially right": both Hussman and the FED Model folks. They miss the fact that low or falling interest rates are good for stocks regardless of projected forward earnings, but that there comes a time when rates get "too high" for stocks. And I don't think there is a specific nominal interest rate number that turns the tide, and the stock market to down. The last "too high" time came in 1966-68 and will come again in due course, as readers of this site know well about the longer term interest rate and inflation cycles. Hint: inflation-adjusted or real interest rates and earnings rates are more germane to the issue. Nevertheless, the Goldilocks "too hot" or the "just right" nominal interest rate is a simple and effective guide to stock returns.
So far rate rises worry us from time to time, as they always should, but stocks are still surviving...so far. Interest rate cycle theory says we should have another ten years or more of stock market rises before interest rates get "too high" for comfort or profit. That doesn't mean a rampant bull market or that we can't have periodic larger corrections, but we shouldn't have a persistently flat or seriously down market as we did from 1966-1982 until rates get "too hot" even though the P/E cycle is contracting.
The bottom line is that stocks rise when interest rates are low (even if they double as between 1948 and 1966)or when interest rates can be seen to have stopped going up (from 1982). When rates are high and/or rising more rapidly, they (and the inflation they reflect) neutralize the effect of quite large nominal increases in earnings (1966/69-1980/81.