I believe the FED will eventually raise rates sometime in the next 24 months. This got me thinking about what companies and stock sectors that have the most to gain from rising rates, but I can purchase now while they are still cheap. Perhaps I will start loading up on a few large domestic banks.
Sectors/stocks that could be harmed by rising rates:
Preferred stocks
utilities
some REITs
Sectors/stocks that could be aided by rising rates:
Financials
Tech
Consumer discretionary
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Insurance companies should benefit.
Alex
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This might sound like a dumb question - but how/why are financials/insurance, tech and cons disc beneficial?
I understand the relationship to preferred stocks, utilities and REITs, but have never heard a valid argument for the flip side of the sectors that benefit from rising rates.
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Banks will likely enjoy better spreads between borrowing and lending. Insurance companies should generate stronger earnings from their investment portfolios.
Alex
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I'm starting to think that everyone is so focused on the imminent rate increase, and so convinced that it will generally be bad for stocks, that the opposite must be true. My silly prediction of the day: the market is not only going to shrug off the rate increases if and when they actually arise, but will surprise most by continuing to rally.
crimsonghost747
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(06-19-2015, 12:59 PM)Kerim Wrote: I'm starting to think that everyone is so focused on the imminent rate increase, and so convinced that it will generally be bad for stocks, that the opposite must be true. My silly prediction of the day: the market is not only going to shrug off the rate increases if and when they actually arise, but will surprise most by continuing to rally.
It's certainly possible. Also the FED, being generally a pretty smart bunch of people, are not going to raise the interest rates substantially. The first increase will certainly be a very minimal one, so small that it won't have any effect other than the psychological one.
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This will definitely be beneficial for the insurance companies and will also help to increase the savings because of the interest amount investors receive.
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I agree Kerim. We all know the Feds will raise rates gradually, and I doubt we'll even see 3% in this decade. The raise will be specifically engineered to have minimal "real" effects on the market--a repeat of 2008 and they just have to start over again.
However, I suspect when the initial raise comes (or just the definite news), we'll see a 36-72 hour "panic" just like we saw with Greece, which will take the markets down. And, just like with Greece, those with dry powder will prosper.
We know rates will raise, that is as simply and obvious a given as warm winters effecting NG prices—it’s a priced in given I believe. What will cause the next 30-50% drop—just like what tanked oil--will be that which nobody (save the few) see coming.
But, then again, I almost bought a bridge in Brooklyn once…so don’t listen to me ;-)
Ronn
