Federal Reserve Chairman Jerome Powell’s first testimony to Congress was completed earlier this week, the US 10 year Treasury rate is headed to 2.90% we wanted to get ahead of the curve and share some observations on rising interest rate environments.

Our team reviewed the past forty five years of market data and selected all six periods of rising US interest rates, applying the impact across a range of assets:

2004 to 2006

Global asset classes rallied significantly during the period. Copper (+155%), Brent Crude (+98%) and Emerging Markets (+65%) gained significantly while the exceptions were the Japanese Yen (-13%) and the VIX (-28%).

US Equity markets were driven by Energy (+82%), Utility (+39%), Industrials (+26%) and Technology (+9%) being the weakest performer.

1999 to 2000

Global asset classes gained during the period. Brent Crude (+100%), NASDAQ100 (+78%), CAC40 (+53% and the Hang Seng (+48%) reflected the largest gains while the VIX (-16%), Euro (-11%) and British Pound (-6%) declined.

US Equity markets were driven by Technology (+48%), Energy (+23%) while the Consumer Discretionary (-10%) and Materials (-10%) and Financials (-5%) declined.

1993 to 1995

Global asset classes gained during the period with most global equity markets posting ~18% gains. Notably Copper (+85%), NASDAQ100 (+40%) and Japanese Yen (22%) reflected the largest gains and the NIKKEI225 (-28%), US Dollar (-12%), CAC40 (-12%), VIX (-12%) and Brent Crude (-6%).

1988 to 1989

CAC40 (+72%), Emerging Markets (+63%) and the DAX (+47%) were the strongest gainers. While Gold (-23%), Japanese Yen (-17%) and British Pound (-17%) fell most significantly during this period.

1977 to 1981

Our dataset starts to thin at this juncture. All key markets demonstrated a rally during this time period, whether this is the Hang Seng (+295%), Gold (+198%), World Equity Markets (+68%) or the NIKKEI225 (+58%).

1972 to 1974

As the earliest component of our dataset, we reflect gains in Gold (+254%) NIKKEI225 (+70%) and losses in the S&P500 (-16%) and DAX (-16%).

Final Thoughts

The data demonstrates that at different times differing asset classes respond to rising rates with greater or lesser degrees of sensitivity.

While the geopolitical backdrop of the times differs (Oil Embargo’s, Middle Eastern conflict, Black Monday, German Reunification, Technology boom, Chinese reflation) and may provide a significant lever on one or multiple asset classes there are significant underlying themes that present themselves.

Contextually we must now consider how does low-interest rates and quantitative easing change this perspective. Good Hunting.!