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The new normal for equities in 2024
Winnie Kwan
Equity Portfolio Manager

“T-bill and chill” might have been a great investment tactic in 2023, but our analysis shows that investors would be better served by diversifying into stocks once interest rate peaks. Over the past four US hiking cycles (from 1977 to 2023), global equities generated an average cumulative return of 14% in the 12 months following the last US Federal Reserve (Fed) interest rate hike. Cash, on the other hand, only generated a return of 4.5%.


For investors who are worried they may have already missed the boat with equities, it is important to remember that the S&P 500’s strong run in 2023 was mostly driven by the ‘Magnificent Seven’. Valuations outside these seven companies are fairly normal. History also tells us that narrow market rallies coming out of a recession have often been followed by steady gains for the broader market, which means investors can still benefit greatly from putting their cash in the asset class.


Equities have outpaced cash after rate peaks

Past results are not a guarantee of future results

As at 30 September 2023. Returns reflect the average cumulative return in US$ terms over each of the first 12 months immediately following the last increase in the target US Federal Funds Rate (“last Fed hike”) over the prior four hiking cycles. The specific ending months for the periods included in the average calculations are: February 1995, May 2000, June 2006, and December 2018. Global equities are represented by the MSCI ACWI (with net dividends reinvested). Global Bonds are represented by the Bloomberg Global Aggregate Total Return index. Cash is represented by the Bloomberg US Treasury Bills 1-3 months total return index. Fed: US Federal Reserve. Sources: Capital Group, FactSet


Winnie Kwan is an equity portfolio manager at Capital Group. She has 26 years of investment industry experience and has been with Capital Group for 23 years. Prior to joining Capital, Winnie worked with Morgan Stanley in London, Hong Kong and Singapore. She holds both master’s and bachelor’s degrees in economics from Trinity College at the University of Cambridge. Winnie is based in Hong Kong. 


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Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.