Insight Investment - Fri, 03/01/2024 - 19:58

Global macro research: asset returns post rate peaks

Rate expectations have changed dramatically and, although markets appear to have got ahead of themselves, inflation is moderating, and growth has slowed, which supports the view that the hiking cycle is over.

If the Fed’s July 2023 rate hike was the last in this cycle, then the asset class returns in the intervening period have been poor by historic standards (see Figure 1 and 2), although the end of 2023 saw a significant upswing. The pace of rate cuts currently priced into markets leaves open the possibility of periodic bouts of volatility as rate expectations re-adjust to a more realistic path, but history does suggest that equity and fixed income markets may continue to make gains into 2024. At some stage, we expect the equity/bond relationship will become less correlated, thereby providing more of a source of diversification in cross-asset portfolios, but this may take time to reassert itself.

Figure 1: Historical performance of US equities after interest rates peak

Source: Insight and Bloomberg. Data as of December 29, 2023. US equities is the S&P 500 Index, US Treasuries is the 10-year Treasury. Past performance is not indicative of future results.

Figure 2: Historical performance of US Treasuries after interest rates peak

Source: Insight and Bloomberg. Data as of December 29, 2023. US equities is the S&P 500 Index, US Treasuries is the 10-year Treasury. Past performance is not indicative of future results.

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Insight Investment

Insight is a global asset manager specializing in fixed income and risk management strategies with over $892.2bn in AUM. We have been working with insurers since 1934 and manage more than $34bn for over 79 insurers globally. Our investment philosophy offers clients innovative yet practical investment solutions. We manage custom fixed income strategies to help meet clients evolving needs, such as liquidity, principal preservation, earnings stability, tax minimization and total return.

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Jeffrey Berman

Head of North America Distribution
Jeffrey.Berman@insightinvestment.com
+1 212 365 3341
200 Park Avenue, New York, NY 10166
www.insightinvestment.com

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