MARKETS & INVESTING
Much of the rally happens before the first cut , especially for bonds performance rebased to 100
106 104 102 100 98 96 94 92 90
Treasuries US stocks
3 . Markets have rallied historically ahead of rate cuts Finally , let ’ s look at all the historical scenarios relating to the initial interest rate cuts following a hiking cycle . As Chart 3 shows , both the stocks and bond markets have delivered 8-9 % total return in the eight months ahead of the first rate cut on average , significantly outperforming cash holdings . Markets are forward looking . They tend to anticipate rate cuts and rally ahead of them , especially for bonds .
In summary , we believe stock and bond markets are going to substantially outperform cash in the year leading up to initial rate cuts , as they have in the past cycles . Diversified multi-asset portfolios , especially those with access to alternatives ( e . g . hedge funds , private equity and commodities ), can help maximise returns while mitigating uncertainties .
88 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 months ( zero point is timing of first rate cut )
Source : Bloomberg , HSBC Global Private Banking as at 19 December 2023 with historical performance since the late 1980s . Past performance is not a reliable indicator of future performance
BROAD MARKETS INDEED OUTPERFORMED CASH IN 2023 . CASH RETURN OF AROUND 5 % MAY APPEAR ATTRACTIVE WHEN COMPARED TO THE HISTORICAL CASH RETURNS IN THE PERIOD BETWEEN THE GLOBAL FINANCIAL CRISIS AND THE COVID RECESSION .
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