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Chart of the week

Inflation wreaks havoc on traditional assets

Amid another record CPI print, this week’s chart looks at the S&P 500 and the Agg’s historical returns during periods of elevated inflation.

March 11, 2022 | 2 minute read

Real returns amid periods of heightened inflation

Source: Bloomberg Finance, L.P. and FS Investments. The Agg refers to the Bloomberg U.S. Aggregate Index. Data include periods between December 1998 and December 2021 when CPI rose above the mean by one standard deviation or more. Periods include April 1998–March 2000; March 2004–October 2005; October 2006–August 2008; and December 2010–September 2011; excludes current inflationary surge that began in April 2021.

  • Markets reacted strongly to Thursday’s consumer price index (CPI) release as inflation hit another four-decade high and is still on the rise. Peak inflation projections continue to get pushed out as the war in Ukraine raises the possibility that prices could see upward pressure for the foreseeable future.
  • Against a backdrop of unrelenting inflation, the 10-year U.S. Treasury yield jumped, breaching 2.0% again, while stocks quickly gave up much of the previous day’s gains.
  • As the chart highlights, inflation has historically not been kind to real returns on traditional assets. Both the S&P 500 and the Agg have generated negative real returns in three of the four periods of elevated inflation highlighted since 1998 and median real returns on both indexes during the periods are solidly negative.1 While the chart doesn’t account for the current spike in inflation as it hasn’t peaked yet, total returns on the Agg and S&P are -4.3% and -10.0%, respectively, year to date.1
  • U.S. inflationary pressures remain broad and don’t yet show many signs of relief. Within this environment, investors’ need for more alternative assets beyond the 60/40 portfolio may only be increasing as they search for inflation-adjusted returns.

  • Bloomberg Finance, L.P. and FS Investments, as of March 10, 2022. The Agg refers to the Bloomberg U.S. Aggregate Index. Data include periods between December 1998 and December 202 when CPI rose above the mean by one standard deviation or more. Periods include April 1998–March 2000; March 2004–October 2005; October 2006–August 2008; and December 2010–September 2011; excludes current inflationary surge that began in April 2021.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

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