Interest Rate Expectations Impact on Stocks

Matthew Allgood |




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Recent market volatility has been largely influenced by the Federal Reserve and expectations around interest rate cuts. Notably, the performance of large-cap stocks compared to small-cap stocks has been tied to these rate expectations.


Earlier this quarter, higher inflation led to fewer anticipated rate cuts, favoring large caps as small caps struggled with rising rates. Now, with recent inflation easing more than expected expectations for rate cuts have increased again, leading to a shift back toward small caps. While this doesn’t alter our strategy, it’s a useful indicator of how market breadth could change with rate-cut catalysts.



Interest Rate Expectations Impact on Stocks


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Source: Bloomberg, Redwood. Data as of 6/12/2024. Date Range from 6/23/2023 - 6/12/2024. Small Cap is representative of the Russell 2000 index. Large Cap is representative of the S&P 500 index. The Implied U.S. Futures Rate represents the estimated Dec 31, 2024, forward rate for the United States using the futures models.



Allgood Financial

Disclosure: This piece is for informational purposes only and contains opinions that should not be construed as facts. Information provided herein from third parties is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Charts and graphs are for illustrative purposes only. Discussion of any specific strategy is not intended as a guarantee of profit or loss.  Past performance is not a guarantee of future results. The objectives mentioned are not guaranteed to be achieved. Investors cannot invest directly in any of the indices mentioned above.


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