Rising interest rates are causing alarm, but history shows the economy can flourish at even higher levels. From 1984 to mid-2007, average rates were generally higher during a period known as the Great Moderation. The yield on the 10-year Treasury recently leaped from 3.97 percent to over 5.2 percent, sparking concern.

Mortgage rates have exceeded 7 percent, while costs rise for credit cards, student loans, and capital projects like AI data centers. The surge was triggered mainly by the war with Iran and rising energy prices. Despite this, the U.S. economy is growing rapidly, with business expansion at its fastest pace in five years and corporate profits rising.

The S&P 500 bull market remains intact, and valuations have become more reasonable as earnings outpace share increases. For investors, remaining in diversified, low-cost index funds still makes sense, even with bond losses this year, as long-term gains are likely from higher yields.