Factor Performance Analysis During Interest Rate Changes

This report analyzes the performance of Growth and Value equity in relation to changes in interest rates, particularly focusing on the implications of potential federal funds rate cuts in 2024. The analysis spans historical stock returns from 1982 to 2023, revealing that Growth equity tends to outperform Value equity when interest rates decline significantly, specifically beyond a 5% reduction. The report outlines that for every additional 10% decrease in rates beyond this threshold, Growth equity outperforms Value by 226 basis points. It further discusses various historical periods of rate decreases, including the Dot Com Bubble and the Great Financial Crisis, to illustrate how different factors perform under such conditions. The findings indicate a notable shift in market dynamics, with Volatility and Small Cap equities currently gaining traction, suggesting a potential transition towards safer investment strategies. The report concludes by emphasizing the evolving nature of market preferences in response to changing economic conditions.