STOCK PERFORMANCE PATTERNS MIRROR HISTORICAL RISING RATE PERIODS
Since October, TPA has been telling clients to position their portfolios for rising rates. In the World Snapshots on 10/26/20 - “What Outperforms When Rates Rise” and 1/4/21 - “Higher Rates Point to Winning Stocks,” TPA identified what sectors and broad categories has historically outperformed.
In the October World Snapshot, TPA looked back at rising-rate periods since 1995 (table below)…..
“TPA identified 7 periods when the U.S. 10 Year Yield rose an average 67%. In the periods 1/18/96 to 6/12/96, 10/5/98 to 1/20/00, 6/13/03 to 6/14/04, 12/30/08 to 4/5/10, 7/4/12 to 12/13/13, 7/8/16 to 3/13/17, and 9/7/17 to 11/8/18 the 10 Year Yield increased 27.84%, 63.09%, 56.48%, 94.15%, 75.81%, 93.37%, and 58.79%, respectively…..In those periods:
1. The 4 best performing sectors are: TECH, Consumer Discretionary, Industrials, Materials
2. The 4 worst performing sectors are: Utilities, Telecomm, REITs, Staples
3. The 2 best performing broad categories are: Small-Cap Growth, Small-Cap
4. The 2 worst performing sectors are: Large-Cap Value, Large-Cap”
Since the low close for the 10-year yield on 8/4/20, the patterns have, for the most part, held true to the historical patterns. The performance tables below show that the same sectors and broad categories that outperformed and underperformed in the 7 rising rate environments since 1995, followed the prescribed path since 8/4/20 (see the tables and charts below)
As TPA stated in October, the 10-Year Yield has broken out and should continue to move higher (chart below).
