Author: Dean Kim

Dean Kim is an Executive Director, Research Analyst for William O’Neil + Co.. Mr. Kim joined the firm to establish equity research coverage of the financial technology (“fintech”) sector. He has unique insight into the industry’s growth drivers, with broad experience covering the financial sector as an analyst and overhauling corporate business processes as a management consultant. Most recently, Mr. Kim served as Chief Financial Officer of Jios Aerogel Limited, a leading producer of the aerogel nanotechnology-based insulation material. As CFO, he raised more than $5 million in capital and managed liquidity, budgeting, and forecasting. Previously, he was an equity analyst for more than a decade. From 2007–2011, Mr. Kim headed equity research for BNP Paribas’ Korea office and simultaneously covered the banking sector, for which he was ranked number one by the Thomson Reuters/Joong-Ang Daily poll. He was also an equity analyst on Lehman Brothers' proprietary trading desk in Hong Kong, and on an Institutional Investor-ranked small cap team at UBS. Earlier in his career, Mr. Kim, an engineer, worked as a business process redesign specialist at Deloitte Consulting, analyzing the organization-wide processes of utilities and manufacturing companies. Mr. Kim earned a Bachelor’s degree in Electrical Engineering at Yale University, and an MBA from Columbia Business School. Outside of work, Mr. Kim enjoys coaching his kids’ soccer teams and traveling with his family.

Yield Curve Inversion and Multiple Rate Hikes

Posted on by Dean Kim

Key Points:

 

  • S&P 500 has continued to outperform over the 12 months following the inversion of the yield curve in all previous instances in the last four decades. It has ended up in green (or flat) over 12 months of all the previous rapid rate hike cycles, except when the rate hikes coincided with the balance sheet normalization program of the Federal Reserve.
  • Energy and Basic Material have been the best performing sectors during rapid rate hikes, but they lag during the slower rate hike cycles. Technology, however, outperforms during slower cycles and lags during rapid cycles.
  • In the last four decades, 2005-06 and 1994 are the only periods with multiple rate hikes that followed a significant flattening of the yield curve. However, 2005-06 is the only such period when the unemployment rate made a low (2006.) On average, Basic Material and Utility have recorded superior performance during such phases.
  • It has taken 18 to 24 months for an economic downturn to begin after the first instance of a yield curve inversion. Based on average performance, Energy, Basic Material, Utility, and Capital Equipment led through the months leading into the downturns. However, these sectors were the worst performers during the downturns.
  • Stocks of interest outside the U.S. Focus List: MP Materials (MP), Choice Hotels (CHH), National Fuel Gas (NFG), New Fortress Energy (NFE).
  • Stocks of interest from the U.S. Focus List: Livent (LTHM), Monarch (MCRI), Ameresco (AMRC), Darling (DAR), Public Storage (PSA).