Historical review: After the Fed’s interest rate hike expectations were priced in, the information technology sector performed best (Goldman Sachs)
By reviewing the pricing process of nine Fed rate hike expectations in the past 30 years, Goldman Sachs discovered a clear sector rotation pattern: within 3 months after market prices began to reflect interest rate hike expectations, the Information Technology
By reviewing the pricing process of nine Fed rate hike expectations in the past 30 years, Goldman Sachs discovered a clear sector rotation pattern: within 3 months after market prices began to reflect interest rate hike expectations, the Information Technology (Info Tech) sector had the highest median excess return, reaching 2.3%, while the Financials (Financials) sector performed the worst, with an excess return of -2.5%. The logic behind this is that technology companies have relatively little impact on financing costs, and their high-growth attributes are better able to withstand rising interest rates; while the financial sector faces the squeeze on net interest margins from the flattening of the interest rate curve. The current market may be going through a similar phase, providing investors with clear tactical trading signals. One-sentence conclusion: Historical experience shows that when the market begins to price the Federal Reserve to raise interest rates, it should positive rating the information technology sector and cautious rating the financial sector. This rotation pattern is highly repeatable. Good/bad: Good for the information technology sector (such as Apple, Microsoft, Nvidia, etc.). Negative for the financial sector. The current market may be in the early stages of this rotation. Catalysts: 1) Federal Reserve interest rate meeting minutes and official speeches, confirming the path of interest rate hikes; 2) U.S. inflation data such as CPI and PCE; 3) relative performance of technology and financial sectors.