SOURCE: Russell Investments

Russell Investments

September 18, 2014 14:52 ET

Rising Rates: U.S. Equity Indexes Were Positive During Last Two Periods of Extended, Consistent Rising Interest Rates

SEATTLE, WA--(Marketwired - Sep 18, 2014) - U.S. small- and large-cap equity indexes have been positive during the last two periods in which the U.S. markets experienced an extended rise in the Federal funds rate, according to Russell Indexes.

From June 30, 2004 through June 29, 2006, the FOMC made 17 consecutive increases to the federal funds rate, taking it from 1.00 to 5.25. The Fed funds rate stayed at 5.25 until the Fed began lowering rates on September 18, 2006.

During this period, U.S. small cap stocks led U.S. large cap stocks, with both posting positive returns, as reflected by 11.4% and 9.8% returns for the Russell 2000® Index and the Russell 1000® Index, respectively. And value-oriented stocks outperformed growth-oriented stocks across the small- and large-cap segments during this period.

And from February 4, 1994 through February 1, 1995, the FOMC made seven consecutive increases to the federal funds rate, taking it from 3.00 to 6.00. The Fed funds rate stayed at 6.00 until the Fed began lowering rates on July 6, 1995.

During this period, U.S. large cap stocks led U.S. small cap stocks, with both posting positive returns, as reflected by 21.8% and 12.0% returns for the Russell 1000® Index and the Russell 2000® Index, respectively. And growth-oriented stocks outperformed value-oriented stocks across the small- and large-cap segments during this period.

"Russell's suite of U.S. market indexes can be a powerful tool and teacher to investors about historical market trends," said David Koenig, CFA, FRM, index investment strategist with Russell Investments. "And while past performance is no guarantee of future performance, it is important for investors to have access to objective and representative index tools to help measure and track the continuing evolution of the markets and gain historical perspective."

U.S. Equity Markets in a Rising Rate Environment: Russell Indexes

 Russell Index   Feb 4, 1994 - July 6, 1995   June 30, 2004 - Sept 18, 2006
 Russell 2000® Index   12.0%   11.4%
 Russell 2000® Growth Index   13.8%   8.0%
 Russell 2000® Value Index   9.8%   14.8%
 Russell 1000® Index   21.8%   9.8%
 Russell 1000® Growth Index   25.6%   5.1%
 Russell 1000® Value Index   18.0%   14.4%

Source: Russell Investments. Returns are total returns (reflect reinvestment of dividends and distributions) and are denominated in U.S. dollars.

For more information on the Russell 2000® Index and the entire Russell Indexes family, go to the Russell Indexes website.

The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

Please note: Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

Russell's publication of the Indexes or Index constituents in no way suggests or implies a representation or opinion by Russell as to the attractiveness of investing in a particular security. Inclusion of a security in an Index is not a promotion, sponsorship or endorsement of a security by Russell and Russell makes no representation, warranty or guarantee with respect to the performance of any security included in a Russell Index. 

Opinions expressed by Mr. Koenig reflect market performance as of September 17, 2014 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance. 

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

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