![]() The same pattern is true for the Russell 1000 Value and Russell 1000 Growth indexes. ![]() 4 When GDP growth dips below 1%, the S&P 500 return falls to 2.0%, but the Nasdaq’s return rises meaningfully to 4.4% (see chart). When real GDP growth is above 1%, the S&P 500 average quarterly return is 2.1% and the Nasdaq return is 2.6%. Growth stocks become a scarce asset in a slowing economy and typically outperform the broader indexes. 3 Against this type of backdrop, companies that can sustain higher levels of sales and earnings growth may, and often do, seem defensive as fewer companies report revenue and earnings growth. Current consensus is for real GDP growth to drop from 2.1% in 2022 to 1.1% in 2023 and 0.8% in 2024. ![]() With rates leveling off, markets may become increasingly sensitive to the decline in U.S. Investor attention in the coming months may shift from rates to growth. 1 Raising rates from 0% to 5% in a matter of 13 months created a meaningful headwind, but another 25 or 50 basis point hike should not be a drastic a shock. Empirically, equities are not particularly sensitive to the level of interest rates, but they do react to changes in rates. Most of the Federal Reserve’s (Fed) work is likely in the rear-view mirror, though some modest hikes are possible from here.
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