What stocks do well when interest rates fall?
Cyclical stock sectors
When interest rates are falling, dependable, regular income investments become harder to find. This benefits high-quality real estate investment trusts, or REITs. Strictly speaking, REITs are not fixed-income securities; their dividends are not predetermined but are based on income generated from real estate.
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.
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.
Financial institutions, highly leveraged businesses, and companies that pay high dividends are all examples of interest sensitive stocks.
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.
As a result, trading institutions tend to push up prices when interest rates and Treasury yields fall. The opposite also occurs when rates rise. But investors have plenty to be excited about this year given the market anticipates lower inflation and lower interest rates as a result.
However, some sectors stand to benefit from interest rate hikes. One sector that tends to benefit the most is the financial industry. Banks, brokerages, mortgage companies, and insurance companies' earnings often increase—as interest rates move higher—because they can charge more for lending.
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No. | Symbol | Company Name |
---|---|---|
1 | AMZN | Amazon.com, Inc. |
2 | TSLA | Tesla, Inc. |
3 | HD | The Home Depot, Inc. |
4 | TM | Toyota Motor Corporation |
What is the highest yielding investment?
- Corporate bonds. ...
- Dividend-paying ETFs. ...
- Mutual funds. ...
- Dividend stocks. ...
- Value stocks. ...
- Small-cap stocks. ...
- Real estate investment trusts (REITs) Best for: investors who want to invest in real estate without actually managing a property themselves. ...
- Real estate. Best for: investors who wish to manage a property.
Unless you are set on holding your bonds until maturity despite the upcoming availability of more lucrative options, a looming interest rate hike should be a clear sell signal.
Should I only buy bonds when interest rates are high? There are advantages to purchasing bonds after interest rates have risen. Along with generating a larger income stream, such bonds may be subject to less interest rate risk, as there may be a reduced chance of rates moving significantly higher from current levels.
The financial sector generally experiences increased profitability during periods of high-interest rates. This is primarily because banks and financial institutions earn more from the spread between the interest they pay on deposits and the interest they charge on loans.
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.
Bank stocks increase in value during periods of inflation, which makes them appealing to investors. Higher net interest margins: Banks earn money from the difference between the interest rates they charge on loans and the interest rates they pay on deposits.
- Money market funds.
- Mutual funds.
- Index Funds.
- Exchange-traded funds.
- Stocks.
- Alternative investments.
- Cryptocurrencies.
- Real estate.
Stock | Trailing annual dividend yield* |
---|---|
AT&T Inc. (T) | 6.3% |
Verizon Communications Inc. (VZ) | 6.3% |
Healthpeak Properties Inc. (DOC) | 6.6% |
Altria Group Inc. (MO) | 8.8% |
Symbol | Name | Price (Intraday) |
---|---|---|
BMI | Badger Meter, Inc. | 175.37 |
CLSK | CleanSpark, Inc. | 16.97 |
GPC | Genuine Parts Company | 162.55 |
DJTWW | Trump Media & Technology Group Corp. | 13.09 |
The market sees a greater than 80% chance of at least five rate cuts from current levels by the end of 2024. Investor optimism about the economic outlook has improved dramatically from a year ago, but there's still a risk that Fed policy tightening could tip the economy into a recession in 2024.
Will S&P go down in 2024?
"In quantifying this risk, essentially, the S&P 500 is 14% above the level it should average in the current quarter, 6.7% above the level it should average in Q4 2024 and 0.5% above the level it should average in Q4 2025."
Those with a strong conviction that interest rates will fall may consider buying funds with a longer maturity, which would generally benefit more from declining rates, Jenkin said.
Wayfair Inc. (NYSE:W), Match Group, Inc. (NASDAQ:MTCH), and Palantir Technologies Inc. (NYSE:PLTR) are some of the stocks that will double in 2024, besides StoneCo Ltd.
Best Growth Stocks for April 2024 | ||
---|---|---|
AISP | Airship AI Holdings, Inc. | 342.28 |
LABP | Landos Biopharma, Inc. | 243.73 |
GCTS | GCT Semiconductor Holding, Inc. | 217.88 |
CRDF | Cardiff Oncology, Inc. | 206.90 |
“As a result, the leading index currently does not signal recession ahead. While no longer forecasting a recession in 2024, we do expect real GDP growth to slow to near zero percent over Q2 and Q3.”