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Mapping Asset Returns to Economic Regimes: A Practical Investor's ... insight.factset.com Sep 9, 2025 17 facts
measurementThe performance gap between cyclical and defensive equities is asymmetric across economic regimes: the return differential is +1.9% per month in 'Growing' regimes, +0.9% in 'Heating' regimes, and -1.4% in 'Stagflation' regimes.
claimCyclical industrial commodities perform best during Growing and Heating economic regimes and also perform well during Stagflation due to their ability to adjust to rising prices.
claimBroad equities, cyclical equities, and emerging market debt achieve their highest returns during 'Growing' to 'Heating' economic regimes and experience lower or negative returns during 'Slowing' to 'Stagflation' regimes.
claimThe empirical regime model classifies the early 1980s and the recovery from the 2008 global financial crisis as 'Growing' or 'Heating' regimes, and the periods of 1973–1975 and 1978–1980 as 'Stagflation' regimes.
claimMost asset classes demonstrate higher realized average returns during the 'Growing' to 'Heating' economic regime, potentially because demand growth in the 'Heating' phase encounters real-world supply constraints.
measurementThe return differential between cyclical and defensive equity sub-sectors is +1.9% per month in 'Growing' regimes, +0.9% in 'Heating' regimes, and -1.4% in 'Stagflation' regimes.
claimThe periods of 1983–1984, the mid-1990s, the early 2010s, and 2023–2024 are classified as 'Growing' regimes, characterized by rising economic activity and improving aggregate demand accompanied by moderating inflation.
claimThe FactSet economic regime model classifies months into four regimes: 'Heating' (increasing CLI and increasing ITS), 'Growing' (increasing CLI and decreasing ITS), 'Slowing' (decreasing CLI and decreasing ITS), and 'Stagflation' (decreasing CLI and increasing ITS).
measurementThe most frequent transitions between economic regimes are Stagflation to Slowing (18%), Growing to Heating (17%), Heating to Growing (15%), and Slowing to Stagflation (14%).
claimInflation-linked bonds outperform other asset classes in 'Stagflation' and 'Slowing' regimes relative to 'Growing' and 'Heating' regimes.
measurementWhen the regime model oscillates between regimes, 30% of these occurrences happen between Slowing and Stagflation, and 31% happen between Growing and Heating.
claimThe empirical regime model classifies the periods of 1983–1984, the mid-1990s, the early 2010s, and 2023–2024 as 'Growing' regimes.
claimThe regime model demonstrates a clear fanning-out pattern in mean returns of asset classes when moving from safer to riskier asset classes across regime pairs, specifically when comparing Growing to Slowing and Heating to Stagflation.
measurementHigh yield credit earns its full return premium during 'Growing' and 'Heating' regimes, with 'Growing' regimes delivering an average of 0.3% more return than 'Heating' regimes, while returns turn flat to negative in 'Slowing' and 'Stagflation' regimes.
claimEmerging market credit performs well during expansionary 'Growing' and 'Heating' regimes when risk premia narrow, but returns decrease during 'Slowing' and 'Stagflation' regimes when activity stalls and risk premia rise.
claimThe U.S. dollar tends to decline and deliver negative returns during Growing and Heating economic regimes.
measurementThe average duration of economic regimes in the empirical model is approximately four months, with specific averages of 4.7 months for 'Growing,' 4.5 months for 'Stagflation,' 3.6 months for 'Slowing,' and 3.5 months for 'Heating.'