3 Trade Ideas To Consider With Higher Interest Rates On The Way

Ian Cooper
Ian Cooper
Cooper was among the few analysts to spot the financial crisis of 2008, the top of subprime and Alt-A, the death of Lehman Brothers, Bear Stearns, and New Century Financial, and even the Dow’s collapse to 6,500, as well as its recovery. He even called for gold to rally well above $1.500 when it traded under $600.
higher interest rates

With the Fed Hiking Interest Rates, Consider These Trade Ideas

The Fed just raised rates by a quarter point.

Along with the hike, the central bank is penciling in another six rate hikes this year. For 2023, we could see another three hikes, with no hikes in 2024.

In fact, officials are signaling they expect for the rate to rise to about 2% by the end of the year. By the close of 2023, the rate could be up to 2.75%. 

So, with higher interest rates on the way, where should we invest?

Opportunity No. 1 — Bank of America (BAC)

When rates climb, margins expand, which is good for banks, and brokerage firms. 

“Analysts are bullish on shares because among the big banks Bank of America is one of the most sensitive to interest-rate hikes. With it widely expected that the Fed will raise interest rates at least three times this year, Bank of America would be poised to benefit more than peers,” as noted by Barron’s.

In addition, Wells Fargo just raised its earnings estimates on Bank of America, believing rate hikes will boost its profits. 

Opportunity No. 2 – SPDR S&P 500 Dividend ETF (SDY)

One of the best ways to diversify at less cost is with an ETF, such as the SPDR S&P 500 Dividend ETF (SDY) – which, since inception has returned about 9% average gains per year. 

Even better, the ETF invests in companies that have consistently increased their dividends each year for the better part of the last 20 years.  That includes AT&T, AbbVie Inc., Exxon Mobil Corporation, Chevron Corporation, National Retail Properties, IBM, and Cardinal Health to name a few of the top ones.  Plus, the ETF carries a dividend yield of 2.68%.

“While a rise in rates would diminish the attractiveness of dividend stocks with premium valuations and low growth, more high-quality dividend payers or the group of dividend growers may stand out. The dividend growth exchange traded fund strategy has helped investors capture the upside potential of a strengthening equities market through quality company exposure,” says ETF Trends.

Opportunity No. 3 — Consumer Staples Select Sector SPDR Fund (XLP)

Another strong ETF to consider is the Consumer Staples Select Sector SPDR Fund (XLP).

During downturns, many of us stop going to restaurants, and cut out spending on gadgets.  But we can’t abandon basic needs items such as bread, milk, toilet paper, diapers, and cleaning supplies to name a few.  All of which can lead to fairly reliable revenue and strong cash flow, which can also benefit ETFs such as the XLP.

With an expense ratio of 0.10%, some of the ETF’s top holdings include Procter & Gamble, PepsiCo, Coca-Cola, Costco Wholesale, Altria Group, Walmart, and Colgate-Palmolive.  With this ETF, you can diversify with names just like this at less than $76 a share.

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