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

Stocks Bonds

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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