QE2 Aftermath : What Has a Steepening Curve Meant for Equity Sectors?

At the November 3, 2010 meeting, the US Federal Reserve divulged its widely anticipated second round of Quantitative Easing (QE2 plan), formally announcing it would purchase an additional USD600bln in US Treasuries by the end of the second quarter 2011. In the aftermath of the announcement the US yield curve continued to steepen given the Fed's planned purchases of intermediate maturities. In this analysis we highlight equity sector and industry observations during three steep curve regimes using Barra US Equity Model (USE3) data: Steep yield curve environments typically follow recessions when economic uncertainty continues to linger; Inflation-sensitive industries (i.e., Gold and Commodities) increase in value as higher inflation expectations prevail; Interestingly, Technology outperformed other sectors on a relative basis; Alcohol, Electric Utilities, Environmental Services, Grocery Stores, and Publishing have historically underperformed