The direction of Fed policy has a significant impact on markets, according to Robert R. Johnson of the American College of Financial Services, in a recent piece for Barron’s. Dr. Johnson notes that 1966-2013 data show the S&P 500 returned an annualized 15.2% during expansive periods (falling rates) but only 5.9% annually during restrictive periods (rates rising). However, the results are not even across sectors: consumer-discretionary sectors do well in expansive periods, while defensive sectors (e.g., food) do better than most during restrictive periods. While bonds do not seem particularly vulnerable to changes in Fed policy, junk bonds seem to follow the trends of equities (12.4% during expansive periods versus 8.4% in restrictive times) over the 1983-2013 period.

Johnson warns, however, that “the current environment is particularly precarious for the bond market.” Real estate also seems to follow the pattern reflected in equities. However, commodities show “a return pattern that is exactly the opposite to that of equities,” according to data derived from the Goldman Sachs Commodity Index over the 1970-2013 period (-0.2% during expansive periods compared to 17.7% in restrictive periods). Looking outside the U.S., Johnson notes that developed markets show the same pattern as U.S. equity markets but that developing markets (which are often commodity-based) show the reverse pattern from 1988 to 2013 (8.5% in expansive periods versus 16.5% in restrictive periods).