When Inflation Peaks, favor Nominal over Real Assets: The Multi-Asset Evidence

As you know, we are big fans of charts (and tables) as they do most of the talking. Today, we present the results of our empirical study on asset class returns following inflation peaks. As always, most other research focuses on equities, but you are selling yourself short in a multi-asset world.

Study characteristics

We looked at the 1, 2, 3, 6, and 12 returns on US equities, US Treasuries, Commodities, and Gold following peaks in US headline inflation. Commodities and Gold represent real asset classes, while US Treasury is very much a nominal asset class. Equities are somewhere in the middle – earnings tend to follow inflation depending on a company’s pricing power – but tend to behave increasingly like a nominal asset class when inflation rises.

We calculate returns using the actual release dates and not end-of-month data.

We distinguish between two return periods, one starting in 1970 and the other starting after the high-inflation environment in the early 1980s, effectively starting in 1984.

We compare average and median returns – we count 19 inflation peaks since 1970, making the data sample sensitive to outliers impacting the average – with the average returns since 1970 and 1984.

With our US Treasury benchmark starting in 1973, the past peak-inflation returns for US Treasuries are based on 18 observations.

The Results

The table below shows the average and median returns for the four asset classes following 19 inflation peaks since 1970.

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