With the Fed on track to hike rates in December and facilitate further policy normalization in 2016, Credit Suisse wonders what a rising US rate environment would mean for asset classes more broadly. The answer to this question comes by first looking at the impact of a hypothetical 100bp move in 2-year rates on different asset classes, and assuming that other asset class determinants remain constant.
As we approach 2016 and with a US rate hike ultimately reflecting an improvement in US growth dynamics, investors may want to focus on gaining exposure to this 'growth premium'.
This is bound to affect not only US assets but also extend beyond the US as foreign assets end up grabbing the largest exposure to US growth. In fact, Credit Suisse analysts believe that equities (both developed and emerging markets) react positively to rising US rates and therefore can offer valuable exposure to this growth premium.
As such, equities should continue to outperform bonds in the aftermath of a Fed rate hike. On the other hand, gold yields tend to fall, with yellow metal prices reacting negatively to rising yields, reflecting the higher average opportunity costs of holding an asset that does not bear interest rates (thereby reflecting a negative correlation with a growth premium).
