History suggests the post-pause rally is just beginning

NOVEMBER 2023

Real rates are restrictive by many measures

Real interest rates account for inflation and are often considered restrictive at levels > zero. With the real Fed Funds rate* and yields on inflation protected bonds (TIPS) positive and rising, real rates are indeed restrictive.

Positive Real Rates

Stocks generally appreciate after the Fed stops tightening rates

Since 1956, the Fed has engaged in 11 interest rate tightening cycles. As measured from the last cycle rate increase, the S&P 500 was up 8:11 times over the next 12 months, with a median return of 18.2%. Over the forward 2-years, the index was up 91% of the time, with a median annualized return of 14.2%.

If monetary policy is restrictive enough for the Fed to stop increasing rates, equity markets could receive a performance tailwind.

Performance Range Post-Cycle End (months)

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*Real Fed Funds (FF) rate = the effective Federal Funds rate minus the trailing six-month average core Personal Consumption Expenditures price index inflation. Past performance is no guarantee of future results. An index is unmanaged and unavailable for direct investment. Source: Bloomberg, Pershing Square “Investor Advisory Committee on Financial Markets,” St. Louis Federal Reserve “FRED” as of 10/31/23.

Past performance does not guarantee future results.  Investing in securities involves risk, including the possibility of the loss of principal.

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