Connect with us

Markets in a Minute

Visualizing the 200-Year History of U.S. Interest Rates

Published

on

This Markets in a Minute Chart is available as a poster.

History of U.S. Interest Rates

us interest rates

This Markets in a Minute Chart is available as a poster.

Visualizing the 200 Year History of U.S. Interest Rates

U.S. interest rates will stay near zero for at least three years as the Federal Reserve enacts measures to prop up the economy.

But are low interest rates a new phenomenon? Interestingly, one study by the Bank of England shows that this pattern of declining interest rates has taken place globally since the late Middle Ages. In fact, it suggests that these downward-sloping rate trends have taken place even before modern central banks entered the scene—illustrating an entrenched, historical trend.

This Markets in a Minute chart from New York Life Investments tracks the history of U.S. interest rates over two centuries, from the creation of the first U.S. Bank to the current historic lows.

U.S. Interest Rates: Historic Highs and Lows

What are the highest and lowest rates throughout history?

Prior to today’s historically low levels, interest rates fell to 1.7% during World War II as the U.S. government injected billions into the economy to help finance the war. Around the same time, government debt ballooned to over 100% of GDP.

Fast-forward to 1981, when interest rates hit all-time highs of 15.8%. Rampant inflation was the key economic issue in the 1970s and early 1980s, and Federal Reserve Chairman Paul Volcker instigated rate controls to restrain demand. It was a period of low economic growth and rising unemployment, with jobless figures as high as 8%.

YearAverage Interest Rate*Year OpenYear CloseAnnual % Change
20200.9%1.9%0.7%**-65.1%
20192.1%2.7%1.9%-28.6%
20182.9%2.5%2.7%11.8%
20172.3%2.4%2.4%-1.6%
20161.8%2.2%2.4%7.7%
20152.1%2.1%2.3%4.6%
20142.5%3.0%2.2%-28.6%
20132.4%1.9%3.0%70.8%
20121.8%2.0%1.8%-5.8%
20112.8%3.4%1.9%-42.7%
20103.2%3.9%3.3%-14.3%
20093.3%2.5%3.9%71.1%
20083.7%3.9%2.3%-44.3%
20074.6%4.7%4.0%-14.2%
20064.8%4.4%4.7%7.3%
20054.3%4.2%4.4%3.5%
20044.3%4.4%4.2%-0.7%
20034.0%4.1%4.3%11.5%
20024.6%5.2%3.8%-24.5%
20015.0%4.9%5.1%-1.0%
20006.0%6.6%5.1%-20.6%
19995.7%4.7%6.5%38.7%
19985.3%5.7%4.7%-19.1%
19976.4%6.5%5.8%-10.6%
19966.4%5.6%6.4%15.2%
19956.6%7.9%5.6%-28.8%
19947.1%5.9%7.8%34.5%
19935.9%6.6%5.8%-13.0%
19927.0%6.8%6.7%-0.2%
19917.9%8.0%6.7%-17.0%
19908.6%7.9%8.1%1.9%
19898.5%9.2%7.9%-13.2%
19888.9%8.8%9.1%3.5%
19878.4%7.2%8.8%22.1%
19867.7%9.0%7.2%-19.7%
198510.6%11.7%9.0%-22.1%
198412.5%11.9%11.6%-2.3%
198311.1%10.3%11.8%14.1%
198213.0%14.2%10.4%-25.9%
198113.9%12.4%14.0%12.5%
198011.4%10.5%12.4%20.3%
19799.4%9.2%10.3%12.9%
19788.4%7.8%9.2%17.6%
19777.4%6.8%7.8%14.2%
19767.6%7.8%6.8%-12.2%
19758.0%7.4%7.8%4.9%
19747.6%6.9%7.4%7.3%
19736.9%6.4%6.9%7.6%
19726.2%5.9%6.4%8.8%
19716.2%6.5%5.9%-9.4%
19707.4%7.9%6.5%-17.5%
19696.7%6.0%7.9%27.9%
19685.6%5.6%6.2%8.1%
19675.1%4.7%5.7%22.8%
19664.9%4.6%4.6%-0.2%
19654.3%4.2%4.7%10.5%
19644.2%4.1%4.2%1.7%
19634.0%3.8%4.1%7.5%

*Indicated by 10-Year Treasury Yields, a prime mover of interest rates
**As of September 28, 2020
Source: Macrotrends

Over the last year, interest rates have dropped from 2.1% to 0.9%, a 65% decrease. Rates are now below 1945 levels—and well under 6.1%, the average U.S. interest rate over the last 58 years.

Longer Horizons

Interest rates in the 18th and 19th centuries also provide illuminating trends.

After falling for three decades at the turn of the century, interest rates stood at 4% in 1835. That year, president Andrew Jackson paid off the U.S. national debt for the first and only time in history, as debt was seen as a “moral failing” or “black magic” in his eyes.

One consequence of this was the government sold swaths of land to finance the federal budget, ultimately avoiding the accumulation of debt. It didn’t last for long. The influx of land sales led to a real estate bubble and eventually, the economy fell into a recession. The government had to borrow again and rates ticked higher over the next several years.

Similarly, after the Civil War ended in 1865, data shows that interest rates also witnessed a long-term, negative slope, which ended in 1945. It then took 100 years for interest rates to exceed the highs of the Civil War era.

Why So Low For So Long?

While the exact reasons are unclear, broad structural forces may be influencing interest rates.

One explanation suggests that higher capital accumulation could be a factor. Another suggests that modern welfare states, with their increased public spending, have as well. For instance, average expenditures of total GDP in the UK averaged 35% between 1981 and 1960, compared to 8% between 1700 and 1750.

Along with this, rates usually have cycles that last between 22 and 27 years. When cycles shift from rising to falling rates, a quick reversal typically takes place. This was seen in 1982, when interest rates dropped 25%—from 14.2% to 10.4%—in one year. However, a different trend can be seen when falling rates switch to rising trends. These reversals typically average 2-14 years.

As near-zero rates seem more likely for the extended future, market distortions—such as ultra-low income yields—may become more commonplace. In turn, investors may want to rethink traditional asset allocations between fixed income, equities, and alternatives.

Advisor channel footer

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading
Comments

Markets in a Minute

What Were the Top Performing Investment Themes of 2023?

In 2023, several investment themes outperformed the S&P 500 by a wide margin. Here are the top performers—from blockchain to AI.

Published

on

The Top Performing Investment Themes in 2023

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

While the S&P 500 rebounded over 24% in 2023, many investment themes soared even higher.

In many ways, the year was defined by breakthrough announcements in AI and the resurgence of Bitcoin. At the same time, investors looked to nuclear energy ETFs thanks to nuclear’s growing role as a low carbon energy source and the war in Ukraine.

This graphic shows the best performing investment themes last year, based on data from Trackinsight.

Blockchain ETFs Lead the Pack

With 82% returns, blockchain ETFs outperformed all other themes in the U.S. due to the sharp rise in the bitcoin price over the year.

These ETFs hold mainly bitcoin mining firms, since ETFs investing directly in bitcoin were not yet approved by regulators in 2023. However, as of January 2024, U.S. regulators have approved 11 spot bitcoin ETFs for trading, which drew in $10 billion in assets in their first 20 days alone.

Below, we show the top performing themes across U.S. ETFs in 2023:

Theme2023 Performance
Blockchain82%
Next Generation Internet80%
Metaverse59%
FinTech54%
Nuclear Energy50%
Cloud Computing49%
AI/Big Data49%
Gig Economy48%
Digital Infrastructure & Connectivity43%

As we can see, next generation internet ETFs—which include companies focused on the internet of things and new payment methods—also boomed.

Meanwhile, nuclear energy ETFs had a banner year as uranium prices hit 15-year highs. Investor optimism for nuclear power is part of a wider trend of reactivating nuclear power plants globally in the push towards decarbonizing the energy supply. In fact, 63 new reactors across countries including Japan, Türkiye, and China are planned for construction amid higher global demand.

With 49% returns, AI and big data ETFs were another top performing investment theme. Driving these returns were companies like chipmaker Nvidia, whose share price jumped by 239% in 2023 thanks to its technology being fundamental to powering AI models.

Top Investment Themes, by Net Flows

Here are the the investment themes that saw the highest net flows over the year:

Theme2023 Net Flows
Robotics & Automation$1,303M
Nuclear Energy$997M
AI/Big Data$987M
Global Infrastructure$734M
Net Zero 2050$716M
Blockchain$357M
Cannabis & Psychedelics$270M
Emerging Markets Consumer Growth$203M

Overall, ETFs focused on robotics and automation saw the greatest net flows amid wider deployment of these technologies across factories, healthcare, and transportation actvities.

The success of AI large language models over the year is another key factor in powering robotics capabilities. For instance, Microsoft is planning to build a robot powered by ChatGPT that provides it with higher context awareness of certain tasks.

Like robotics and automation, AI and big data, along with blockchain ETFs attracted high inflows.

Interestingly, ETFs surrounding emerging markets consumer growth saw strong inflows thanks to an expanding middle class across countries like India and China spurring potential growth opportunities. In 2024, 113 million people are projected to join the global middle class, seen mainly across countries in Asia.

Will Current Trends Continue in 2024?

So far, many of these investment themes have continued to see positive momentum including blockchain and next generation internet ETFs.

In many cases, these investment themes cover broad, underlying trends that have the potential to reshape sectors and industries. Going further, select investment themes have often defined each decade thanks to factors like technological disruption, geopolitics, and the economic environment.

While several factors could impact their performance—such as a global downturn or a second wave of inflation—it remains to be seen if investor demand will carry through the year and beyond.

Advisor channel footer

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading

Markets in a Minute

Ranked: What People Value Most in a Financial Advisor

Positive reviews and recommendations are some of the least important factors—so what do people look for in a financial advisor?

Published

on

A bar chart of what people value in a financial advisor, showing that personalization is related to three of the top four answers.

Ranked: What People Value Most in a Financial Advisor

Are advisors putting their focus where it matters? You might think that positive reviews and recommendations would be a top consideration for people choosing a financial advisor. However, other qualities appear to be much more important.

This graphic uses data from Morningstar’s Voice of the Advisor report to outline what people value most in a financial advisor.

The Qualities Investors Value

Morningstar surveyed 400 people: 100 Caucasian women, 150 women of color, and 150 men of color. The values below show how often people chose an item as most or least important when working with an advisor.

QualityMost ImportantLeast Important
Expertise and knowledge in financial planning and investments60%11%
Personalized financial advice that meets my specific goals and needs54%16%
Ability to understand my risk tolerance and appropriately align my investments47%17%
Specialization in specific financial situations, such as retirement planning45%17%
Ability to communicate complex financial concepts in an understandable way42%22%
Transparent fee structure and pricing for my advisor’s services42%22%
Trust and rapport established during the initial meetings with my advisor36%24%
Ability to incorporate investment options that reflect my values22%41%
Positive online reviews or ratings about my advisor’s services22%46%
Recommendations from friends or family who had a positive experience with my advisor20%47%
Commitment to diversity and inclusion, making me feel comfortable and respected20%47%
Recommendations from other professionals, such as accountants or attorneys19%50%
Shares a similar background or cultural understanding10%68%

Participants were asked the following question: “On each screen, we will show you 3 items to think about when working with a financial advisor. Select which one is most important and which one is the least important of the items. You will see more than one screen and items may appear more than once.”

Enjoying this content? Dive into more insights in the Voice of the Advisor Report:

Report cover titled Four Opportunities to Elevate the Advisor-Client Relationship through Personalization with additional report pages shown. There is also a red button that says Click for exclusive insights.

Even among a survey pool that was mostly people of color, the majority of respondents didn’t think a commitment to diversity or a shared background were important.

Instead, three of the top four factors were related to personalization.

Personalization: A Key Quality in a Financial Advisor

People cared deeply about personalization regardless of gender and race. It was even more important to those with more than $250,000 in assets, suggesting that personalization may become more critical as a person’s portfolio value increases.

Even investors not currently working with an advisor and non-investors noted that personalization would be a top quality they would look for in a financial advisor.

Within personalization, people noted risk management was a very important element. Financial advisors can highlight their ability to tailor financial plans based on each person’s risk tolerance in order to attract clients.

Looking for tips on how to grow your advisory business? Get insights on what investors want, and how other advisors are evolving, in Morningstar’s Voice of the Advisor report.

Report cover titled Four Opportunities to Elevate the Advisor-Client Relationship through Personalization with additional report pages shown. There is also a yellow button that says get the free report now.

Advisor channel footer

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading

Popular