stocks to sell before interest rates rise
TRANSCRIPT
Stocks to Sell before
Interest Rates Rise
Bywww.tradernewsandreviews.com/
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The stock market falls every time there is a suggestion that interest rates are going up.
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The U. S. Federal Reserve has stated that their decision to raise interest rates will be “data driven.”
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So each time that some piece of information comes out that indicates a healthy and recovering economy, which would normally drive stocks up, the market expects a rate increase and stocks fall.
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Given that the U. S. economy will slowly continue to mend and that rates will go up sooner or later what are the stocks to sell before interest rates rise?
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Higher interest rates are generally good for insurance companies and commercial banks.
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Investment banks with large bond portfolios don’t do as well. When interest rates go up because of a healthier economy then automakers, restaurants, casinos, travel stocks and luxury retailers tend to do well, at least in the near term.
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Even tech stocks may do well because of the fundamentals that trigger a rate increase.
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Many long term investors invest in utility stocks as an alternative to bonds.
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The current yield in the utility sector is around 3.5% which is about twice the yield on a ten year treasury.
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The absolute value of utility dividends is driven by the underlying business and will likely not rise or fall with a rate increase.
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However, the value of the stock will fall.
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The utility sector P/E ratio was about 12 when the 10 year treasury was between 3.5% and 4% in 2010.
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Today when the 10 year treasury is between 1.5% and 2% the P/E ratio of utilities is 19.
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The first stocks to sell before interest rates rise may well be utilities!
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When Interest Rates Slow the Economy
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The point of raising interest rates is to stay ahead of inflation.
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The Fed believes that once inflation gets going it can be hard to contain and so staying ahead of the curve instead of catching up is better.
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But, if the Fed overshoots on raising rates the economy will slow excessively.
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Then look to see already-weak stocks like oil and natural gas companies with big debts be hurt disproportionately.
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Are There Stocks to Hold Even if Rates Go Up?
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We already mentioned commercial banks and insurance companies. And stocks that are already discounted to the rest of the market may fall less with a slight increase rates.
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Big oil stocks that pay a decent dividend may be a reasonable choice if your intent is to hold them for an eventual recovery.
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In the currently crazy presidential election campaigns both candidates have talked about increasing infrastructure spending.
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If that were to happen in the investment would be huge and the potential for investing in the winners would be great, far outdistancing market fluctuations caused by small changes in the interest rate.
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The American Society of Civil Engineers estimates that $3.6 Trillion is needed prior to 2020 in their American Infrastructure Report Card.