Stocks to Sell Before Interest Rates Rise www.tradernewsandreviews.com/ The stock market falls every time there is a suggestion that interest rates are going up. The U. S. Federal Reserve has stated that their decision to raise interest rates will be “data driven.” 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. 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? Interest Rate Sensitive Stocks Higher interest rates are generally good for insurance companies and commercial banks. 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. Even tech stocks may do well because of the fundamentals that trigger a rate increase. Utilities are another matter.

1. Stocks to Sell before
Interest Rates Rise
By
www.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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Interest Rate Sensitive Stocks

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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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Utilities are another matter.

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Utilities as a Bond Alternative

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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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Infrastructure Spending

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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.