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Conversation of the Week

While rates are low and rising, both stocks and bonds have been under pressure, history shows this is typically good for stocks.

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Speaker Notes

A low-for-long call on interest rates doesn’t mean that interest rates won’t ever move from these levels. How have asset classes responded during various interest rate environments?

Using the average 10-Year U.S. Treasury rate over the past 20 years (4%), we identify two different rate regimes (below 4% and rising, below 4% and falling). The results show that rising interest rate environments have proven to be favorable to equity and equity-like assets.

Sources: Barclays Live, Credit Suisse, Alerian and Bloomberg, 12/31/17. The average 10-Year Treasury rate over the past 20 years is 4%. “Low” is defined as below 4%. Commodities are represented by the Dow-Jones UBS Commodity Index. TIPS is represented by U.S. Generic Treasury Inflation Protected Bond Securities. Gold is represented by the U.S. dollar spot price of one troy ounce. Core Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index. Senior Loans are represented by the Credit Suisse Leveraged Loan Index. International Equities are represented by the MSCI EAFE Index. Master Limited Partnerships are represented by the Alerian MLP Index. Emerging Market Equities are represented by the MSCI Emerging Market Index. Large-Cap Equities are represented by the Russell 1000 Index. Small-Cap Stocks are represented by the Russell 2000 Index. Past performance does not guarantee future results.

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