Knowledge Tree
Slowing
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Mapping Asset Returns to Economic Regimes: A Practical Investor's ... insight.factset.com Sep 9, 2025 21 facts
measurementThe regime model described in the FactSet Insight article exhibits a low frequency of unreasonable transitions, specifically 3% for Slowing to Heating and 4% for Stagflation to Heating.
claimThe early 2000s tech unwind began in a 'Stagflation' regime, where growth decelerated while headline CPI increased, before transitioning to a 'Slowing' regime during the 2001 recession.
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.
claimCyclical industrial commodities deliver negative returns during the Slowing economic regime when demand weakens and prices fall.
claimThe empirical regime model classifies the 2008–2009 downturn and the Covid-19 pandemic contraction as 'Slowing' or 'Stagflation' regimes, and the post-pandemic rebound as a 'Heating' regime.
claimWhen the economic cycle shifts to Slowing or Stagflation, a slowdown in the U.S. economy typically leads to a global downturn, which increases demand for Treasuries and strengthens the U.S. dollar.
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%).
claimThe empirical regime model classifies the early 2000s tech unwind as a 'Stagflation' regime that transitioned to a 'Slowing' regime upon the start of the 2001 recession.
claimInflation-linked bonds outperform other asset classes in 'Stagflation' and 'Slowing' regimes relative to 'Growing' and 'Heating' regimes.
measurementGovernment bonds provide a return of 0.8% per month with a Sharpe ratio of 0.5 during the 'Slowing' economic regime, while barely keeping pace with cash during expansionary 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 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.
claimA shift to Slowing or Stagflation economic regimes typically coincides with a U.S. economic slowdown and a global downturn, which increases demand for U.S. Treasuries and strengthens the U.S. dollar.
measurementPrecious metals gain an average of 1.4% per month during the Slowing economic regime and perform well during the Heating economic regime.
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 empirical regime model classifies the 1997–1998 Asian-currency crisis and the Long-Term Capital Management hedge fund turmoil as 'Slowing' regimes characterized by demand-side shocks.
claimDuring 'Slowing' or 'Stagflation' economic regimes, a slowdown in the U.S. economy typically increases demand for Treasuries and strengthens the U.S. dollar.
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.'
claimHigh yield credit returns are flat to negative during 'Slowing' and 'Stagflation' economic regimes.