Dispersion rose in July, and may continue to do so. But as the historical data show, there is no reliable relationship between changes in dispersion and changes in interest rates.
Finally, rising rates won’t foretell the performance of factor indices. We examined several pairs of nominally opposite factor indices (e.g., growth vs. value, low volatility vs. high beta, etc.). In no case is there reliable evidence that interest rate changes have an impact on the relative performance of factor indices. The chart below highlights this for the S&P 500 Low Volatility and High Beta Indices.
There will no doubt be many economic and market effects attributed to the rise in interest rates, when it comes. This trifecta serves as a good reminder that analyzing the behavior of the equity market involves more than just the Fed’s decrees.
This article was written by Fei Mei Chan, associate director, index investment strategy, S&P Dow Jones Indices