As interest rates are to be higher, certain industries will suffer, others can bode well
As interest rates are to be higher, certain industries will suffer, others can bode well
According to quantitative analyst Savita Subramanian at Bank Of America, these are the industries and sectors that historically have fared well during a rate hike cycle.
The consumer discretionary sector has outperformed the S&P 500 more than any other sector, but it currently faces risks from rising labor costs as wage pressures intensify, the bank said. Information technology, energy, materials, and staples are other cyclical sectors that have historically done well during rate increases by the central bank.
The Bond proxies, such at utilities and real estate perform the worst. This signals tougher times ahead for these two. Industrials also have historically suffered in rising rate environments.
Small-caps stocks outperform their large cap counterparts in the months leading up to a rate hike cycle. Afterwards they typically underperform large caps by about 1%.
B Of A says right now small caps are historically cheap vs. large caps.
Technology and the high growth stocks will get hurt. Higher interest rates affect their potential future earnings, because of the higher discounting that comes with higher interest rates. Growth has underperformed value during this time, and value has been the winner so far as investors seek out higher quality stocks.
Markets are likely to stay volatile in 2022, as they price in rate hikes. Price target at B Of A is 4700 on the S&P 500. Owning good quality stocks during this time is going to be key. Stocks that generate good free cash flow, and payout good dividends.
