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Chart of the week

Equity market to remain rate dependent in 2024?

This week’s chart finds the bulk of the S&P’s returns last year came on days when rates fell. So far, 2024 has followed a similar pattern.

January 12, 2024 | 2 minute read

S&P 500 performance attribution

Source: Bloomberg Finance, LP, FS Investments as of January 10, 2023.

  • 2023’s strong rally took place amid a concerning pattern as nearly all the S&P 500’s 23% return came on days when long-term Treasury yields fell. The rally became exaggerated when rates plunged in Q4 2023 as the soft-landing euphoria increasingly took hold.
  • While 2024 is barely two weeks old, stocks’ reliance on rates has shown no signs of abating. The S&P 500 declined as rates rebounded to start the year, then recouped those losses as bonds rallied over the past week.
  • This data underscores the extraordinary rise in stock/bond correlation since the start of the decade. From 2010 through 2019, the average 6-month correlation between stocks and bonds was -0.30.1 Since 2020, it has averaged +0.18, and today sits at a multidecade high of +0.68.1
  • Falling yields or any number of factors could drive stocks higher again in 2024, as they did in Q4 2023.
  • Yet it is important investors remain aware of traditional stocks rate sensitivity and its impact on portfolio diversification, especially at a time when rates remain highly volatile as expectations for policy and the economy gyrate.

  • Bloomberg Finance, LP, FS Investments as of January 10, 2024.

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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