Tim Smith: ‘What stocks benefit from rising interest rates?’

☞ None?

This is not to say that the increased business activity often associated with rising rates may not lead to higher profits that could help some stocks if the economy takes off (though many stock prices, it seems to me, already discount significantly higher profits).

Nor is it to say that the expected inflation that also often underlies rising interest rates might not help stocks that are seen as inflation hedges, like gold stocks (never my favorite, on principle – why waste all this effort mining more of something whose value derives precisely from its scarcity?).

But rising interest rates, in and of themselves, are not good for corporate profits (it costs companies more to borrow). And they make stocks less attractive relative to interest-bearing alternatives (like bonds).

Ah, you say, well, higher interest rates must be good for lenders, no? But banks, by and large, seem to do better when rates are low. I guess their cost of attracting funds tends to rise at least as fast as their ability to raise the price at which they lend.

So stocks may rise when interest rates do (unless rates rise a lot). But it is a very rare stock indeed that will rise because interest rates rise.

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How about them Oscars?! I love to think that a billion people saw it. I wish even more could. I think it makes us seem like the very decent people that, for the most part, we are.

 

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