To The Moon

Fed Chair has said policymakers expect interest rates will need to move higher to reduce US growth and contain price pressures, even though they held rates steady at their meeting last week.

As investors I feel that we need to know which industries would benefit from higher interest rates so that we can trade better.

In this article, I shall explore the business sector that stands to benefit from higher interest rates and how this can lead to positive outcomes for investors and the economy at large.

And the potential underlying stocks that I will be looking at.

Interest rates play a crucial role in the economy, influencing various sectors and shaping business strategies. While low interest rates encourage borrowing and stimulate economic growth, higher interest rates have their own set of advantages.

Banking and Financial Institutions

When interest rates rise, banking and financial institutions typically experience improved profitability. These entities generate revenue through the spread between the interest rates they pay on deposits and the rates they charge on loans.

As interest rates increase, the spread widens, resulting in higher net interest income. This enhanced profitability allows banks to expand their lending activities and invest in various financial instruments, stimulating economic growth.

Stock to Watch : $JPMorgan Chase(JPM)$

I would look at JPM because of these factors

Strong Financial Performance: JPMorgan Chase has a history of delivering solid financial results. It consistently generates substantial revenues and profits, which is an encouraging sign for investors.

Diversified Business Model: The bank's diversified business model allows it to benefit from multiple revenue streams. It has a strong presence in various segments, such as investment banking, trading, and consumer banking, which can help it weather market volatility.

Global Presence: JPMorgan Chase operates internationally, giving it exposure to different markets and economies. This global presence provides opportunities for growth and diversification, reducing the risk associated with being solely reliant on a single market.

Strong Risk Management: The bank is known for its robust risk management practices, which have helped it navigate challenging market conditions in the past. This focus on risk management instills confidence in investors.

Dividend and Share Buybacks: JPMorgan Chase has a history of returning capital to shareholders through dividends and share buybacks. This can be attractive to investors seeking income and long-term value appreciation.

Current JPMorgan Chase (JPM) Stock Trend

As we can see from the trend chart below using SMA, JPM is experiencing its bull trend for quite some time.

As they are not so much affected by the previous bank crisis, they should be able to reap good benefit from the higher interest rates if it is happening.

Insurance Companies

Insurance companies often invest a significant portion of their premium income in fixed-income securities such as bonds.

When interest rates rise, the yields on these bonds increase, enabling insurance companies to earn higher returns on their investments.

This positively impacts their profitability, leading to stronger financial positions. Higher interest rates also encourage individuals and businesses to purchase insurance products, further benefiting the insurance industry.

Stocks to Watch: $Manulife(MFC)$

Manulife Financial Corporation, a leading international financial services group, is well-positioned to capitalize on numerous growth opportunities and has garnered a bullish outlook from investors. With its robust global footprint, diversified product portfolio, and commitment to innovation, Manulife is poised to deliver value to its shareholders and stakeholders alike.

Expanding Global Presence : One of Manulife's key strengths lies in its extensive global presence. The company operates in multiple markets, including Canada, the United States, Asia, and other regions. This diversified geographical footprint offers Manulife a competitive advantage, as it allows the company to tap into various economies at different stages of development.

Diversified Product Portfolio : Manulife's diverse product portfolio is another aspect that contributes to its bullish outlook. The company offers a wide range of financial solutions, including life insurance, health insurance, retirement planning, investment management, and wealth accumulation products. This diversified approach enables Manulife to cater to the varying needs and preferences of its customer base, thereby enhancing its revenue streams and mitigating risks associated with a single product line.

Financial Strength and Performance : Manulife's solid financial performance is a testament to its bullish outlook. The company has consistently demonstrated strong fundamentals, including robust earnings growth, disciplined cost management, and a healthy balance sheet. Its prudent risk management practices and diversified investment portfolio have contributed to its financial stability and resilience in the face of market volatility.

Strategic Initiatives and Growth Prospects : Manulife has been actively pursuing strategic initiatives to further fuel its growth. The company is focused on expanding its presence in high-growth markets, strengthening its distribution networks, and enhancing its digital capabilities. By deepening its relationships with customers and leveraging data analytics, Manulife aims to provide personalized solutions and deepen customer engagement.

Current Manulife (MFC) Stock Trend

MFC has been undergoing a Bull trend for quite some time, I believe with the benefit from higher interest rates, they might be able to reap more benefits.

Retirement and Pension Funds

Higher interest rates can be advantageous for retirement and pension funds that rely on fixed-income investments to generate income for their beneficiaries. As interest rates rise, the yields on fixed-income securities increase, potentially providing higher returns on these investments. This allows retirement and pension funds to enhance their investment portfolios, meet their obligations, and secure the financial well-being of retirees.

Real Estate and Property Developers

Although higher interest rates may initially discourage borrowing for real estate purchases, they can have positive effects on the real estate sector in the long run.

When interest rates rise, it can lead to a slowdown in property demand and price growth. This can create more favorable conditions for first-time homebuyers, who may find it easier to enter the market at lower price points.

Additionally, higher interest rates can help curb speculative investment, fostering a more stable and sustainable real estate market.

Stocks to Watch: $Prologis(PLD)$

Prologis is a leading industrial real estate investment trust (REIT) that focuses on logistics and distribution facilities.

As e-commerce continues to thrive, the demand for modern warehouses and distribution centers has soared. Prologis, with its extensive portfolio and global reach, is well-positioned to benefit from this trend.

The company's strategic locations, strong customer relationships, and commitment to sustainable development have contributed to its bullish growth trajectory.

Current Prologis (PLD) Stock Trend

PLD is experiencing a Bull trend currently due to strong housing demand, and the higher interest rates would have further positive impact on this stock.

Savings and Investment Products

Individuals seeking low-risk investment opportunities often turn to savings accounts, certificates of deposit (CDs), and other similar financial products. When interest rates rise, the returns on these savings and investment products increase as well. This incentivizes individuals to save more and provides them with the opportunity to grow their wealth more quickly. Higher interest rates can also encourage long-term investment strategies, leading to a more robust and stable economy.

Summary

While low interest rates are often favored for stimulating economic growth, higher interest rates can provide various benefits for certain sectors.

Industries such as banking, insurance, retirement funds, real estate, and savings and investment products stand to gain from rising interest rates.

These benefits include increased profitability, higher investment returns, enhanced financial stability, and improved market conditions.

However, we should always be aware that impact of interest rate changes on specific sectors can vary, and the overall economic context should be considered when analyzing the potential effects of interest rate adjustments.

I would think we can put these 3 stocks mentioned in our watchlist. JPM, MFC, PLD.

Appreciate if you could share your thoughts in the comment section what is your views on the benefit from higher interest rates? Would you consider these 3 stocks to be in your watchlist?

@TigerStars @Daily_Discussion @TigerWire  appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.