👉 (13 Must Reads) What Equity Markets with US rates peak?
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(13 Must Reads) 👇
EQUITY MARKETS WITH US RATES PEAK 🔔
🚨 “Analysis of how equity markets behave around the peak of an interest rate hiking cycle since the 1970s, and ahead of a recession, could help to show where equity markets might head next.”
✔ “In general, recessions follow around eight months after the last rate hike (of a cycle), and then end thirteen months after the initial rate cut.”
✔ “Turning to equity markets, global shares have averaged a 7% annual gain in the year after the last increase in policy rates in hiking cycles.”
✔ “In addition, the most defensive parts of the market, such as healthcare and telecoms, generally outperform in the months following the peak in rates (albeit this doesn’t guarantee future performance.)”
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EQUITY MARKET PERFORMANCE
✔ “Based on those episodes and following the last hike, the US Federal Reserve (Fed) left rates on hold for five to six months on average before cutting rates.”
✔ “The length of the 'pauses' varied substantially (between one and 15 months), with the shortest 'pauses' coinciding with periods of sharp deterioration in economic activity (April to July 1974, March to April 1980 and May to July 1981).”
✔ “The analysis shows that on average, following the last hike, developed market equities flat lined for about five to six months, while rates were on hold, and grinded higher in the subsequent months, after the first cut.”
The MSCI World index returned 7% on average in the year following the last US rate hike, including dividends, and 4% in the subsequent year.”
✔ “This compares with average annual returns of 11% for the MSCI World index over the past 50 years albeit past performance is never a guarantee of future performance.”
SO, WHAT NOW? 💲
✔ “While the recent easing of inflationary pressures globally suggests that the Fed and other major central banks will probably stop hiking rates soon, it seems premature to expect rate cuts this year.”
✔ “History shows that central banks can leave rates on hold for a long time, depending on how the economy responds to the policy tightening.”
✔ “Those effects will be compounded by the recent tightening in bank lending standards, which has already led to a significant decline in loan growth and will contribute to a further slowdown in economic activity.”
“Even if rates are close to their peak in major economies, the key question is how long they will stay elevated. If left on hold in restrictive territory for too long, those rates could precipitate the next recession.”
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Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.