Winners & Losers from the Fed’s Last Rate Hike Cycle
It appears the Federal Reserve is done raising rates for the time being.
The Fed recently hiked its key Fed Funds Rate by 500 basis points in just a little over a year. This is one of the most rapid hike cycles on record, consisting of eleven rate hikes in which four of them were 75 basis point raises and two of them were 50 bps.
After a long period of little activity from the Fed in the 2010s, advisors and clients are now concerned with the effect rising rates will have on their portfolios.
Which Allocations Performed Best in the 2015-2018 Cycle?
Fitting the same narrative as mentioned above, portfolios with a higher equity allocation delivered higher returns across the three-year rate hike cycle. However, markets corrected sharply at the start of 2018 and toward the end of the cycle, causing equity-heavy portfolios to be hit harder than those with a larger bond or cash concentration.
A cash position mixed with stocks and bonds held up pretty well. The 55/35/10 Portfolio was the fourth-best performer throughout the rate hike cycle and endured less standard deviation along the way.