What stocks will go up when interest rates go down?
Certain economic sectors can benefit from falling interest rates. Depending on the circ*mstances, the consumer discretionary, information technology, utilities, real estate, consumer staples and/or materials sectors may see a boost as rates drop.
Cyclical stock sectors
The consumer discretionary, technology, real estate, and financial sectors have historically been especially likely to outperform the market when rates fall and earnings rise. Financial stocks look particularly appealing, due to how inexpensive they've recently been.
When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. On the other hand, when interest rates have fallen significantly, consumers and businesses will increase spending, causing stock prices to rise.
The lower interest rates signaled by the Fed this week will decrease the cost of borrowing for banks to fund loans and other transactions, KBW banking analyst Chris McGratty noted. This has helped trigger a surge in bank stocks that extended for a second day on Thursday following the Fed's latest meeting.
Defensive sectors such as utilities and real estate are likely to improve in a more stable and declining rate environment, which helps reduce financing costs. Consumer staples and health care, known for their defensive characteristics and steady demand, often deliver strong performance.
Banks make money from the interest they charge on loans. As interest rates rise, banks can often charge a higher interest rate on loans and credit cards compared with the rates they have to pay savings and other interest bearing accounts.
Financial institutions, highly leveraged businesses, and companies that pay high dividends are all examples of interest sensitive stocks.
Financials First. The financial sector has historically been among the most sensitive to changes in interest rates. With profit margins that actually expand as rates climb, entities like banks, insurance companies, brokerage firms, and money managers generally benefit from higher interest rates.
"Depending on the maturity of the bond, someone who already holds a bond before rates decline is likely to benefit from the higher yield available on their bond, plus see their bond prices rise if rates fall." That said, falling rates will also lead to lower yields on newer bonds.
Rising interest rates typically make all debt more expensive, while also creating higher income for savers. Stocks, bonds and real estate may also decrease in value with higher rates. You can take defensive action to help prepare for bad economical times while growing your overall finances.
Do bank stocks rise when interest rates go up?
As a general rule, bank stocks tend to increase when interest rates rise, as the banks have potential to bring in more revenue. To understand the relationship between interest rates and the performance of financial institutions, know how banks work. Banks don't simply hold on to the money deposited into their accounts.
| Company (Ticker) | Sector | Market Cap |
|---|---|---|
| Bank of America (BAC) | Financials | $297.13B |
| Wells Fargo & Co. (WFC) | Financials | $212.20B |
| Citigroup (C) | Financials | $119.54B |
| UBS (UBS) | Financials | $87.92B |
If bond yields rise, existing bonds lose value. The change in bond values only relates to a bond's price on the open market, meaning if the bond is sold before maturity, the seller will obtain a higher or lower price for the bond compared to its face value, depending on current interest rates.
Most bonds pay a fixed interest rate that becomes more attractive if interest rates fall, driving up demand and the price of the bond. Conversely, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, resulting in a decline in its price.
| Symbol | Company Name | Relative Strength |
|---|---|---|
| PG | PROCTER and GAMBLE CO | 54 |
| MRK | MERCK and CO INC | 66 |
| VZ | VERIZON COMMUNICATIONS INC. | 53 |
| BMY | BRISTOL-MYERS SQUIBB CO | 24 |
The tech sector was chosen as one of the best sectors for investors in 2024 due to its continuous innovation, growth potential, and increasing integration into all aspects of life and business.
A boon for savers.
Savers will get the best rates from savings and money market deposit accounts that are already providing top yields. You'll typically find those accounts at online banks or other online financial institutions.
So, the short answer is that some inflation and rising interest rates can be good for banks but too much can cause loan volumes to fall and defaults to jump.
High inflation has historically correlated with lower returns on equities. Value stocks tends to perform better than growth stocks in high inflation periods, and growth stocks tend to perform better during low inflation.
- CVNA84.316.81% Carvana Co.
- AI22.830.67% C3.ai, Inc.
- KSS24.530.25% Kohl's Corporation.
- MPW4.51-0.05% Medical Properties Trust, Inc.
- ABR12.820.28% Arbor Realty Trust, Inc.
- CNK17.650.17% Cinemark Holdings, Inc.
- UPST23.460.63% Upstart Holdings, Inc.
- PLUG2.410.03% Plug Power Inc.
Will the stock market keep going up?
With stock indexes at all-time highs, it seems we are in the midst of a new bull market. While much of the market's recent gains have come from a handful of stocks, the rally has begun to broaden in recent months. Expectations of an earnings rebound in 2024 suggest earnings could continue to drive the market higher.
| Company | Dividend Yield |
|---|---|
| Evolution Petroleum Corporation (EPM) | 8.39% |
| Eagle Bancorp Inc (MD) (EGBN) | 8.18% |
| CVR Energy Inc (CVI) | 8.13% |
| First Of Long Island Corp. (FLIC) | 7.87% |
| Stock | Dividend yield |
|---|---|
| Pfizer Inc. (PFE) | 6.6% |
| Coca-Cola Co. (KO) | 3.3% |
| Johnson & Johnson (JNJ) | 3.4% |
| Prologis Inc. (PLD) | 3.7% |
- NRG Energy (NRG).
- Brookfield Infrastructure Corp. (BIPC).
- Clearway Energy (CWEN, CWEN. A).
- Atlantica Sustainable Infrastructure (AY).
- Suburban Propane Partners (SPH).
Inflation and Fed hikes have pushed mortgage rates up to a 20-year high. 30-year mortgage rates are currently expected to fall to somewhere between 6.1% and 6.4% in 2024. Instead of waiting for rates to drop, homebuyers should consider buying now and refinancing later to avoid increased competition next year.
