Capital Markets: Observations & Insights
Different Performance Regime Party Without the Punch?
• What worked in a falling rate environment may not work going forward
Rising vs. Falling Rate Environments Annual Real Returns 1955-2017
0% 1% 2% 3% 4% 5% 6% 7%
Asset allocation is more important when rates are rising
-4% -3% -2% -1%
Average Annual Return
Falling Fed Funds Rates
Rising Fed Funds Rates
Source: FactSet and Aswath Damodaran. “Stocks” is the S&P 500. “Bonds” is the constant maturity U.S. 10-year Treasury bond return. Real return is calculated as nominal less 3 month U.S. T-bill return annually. Return over the period is calculated using a simple average of annual returns.
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