When interest rates rise..

[Mecisteus]

It depends on what kind of trader or investor you are. I am macro while most here are micro - being macro has always felt simpler.

from your posts, i can see you more into currencies. so yes macro views are important.

if your simple macro views can rake good money, then thats good for you.

 

[SpeedingBullet]

Yes it's all about finding out how to make money in the inevitable event where i/r finally starts to rise again. Be it 25 bp or 100bp. Currencies and bonds iirc, wld be the first to react.

So, as a change from all the insane rubbish that's infested this thread, I've got an actual answer for you.

Tech and healthcare tend to outperform in environments of rising interest rates, according to S&P research from 2010 (boy, they were a bit early). Financials and materials tend to underperform. (You'd think consumer discretionary would underperform as well.)

Financials underperforming makes sense, because banks borrow short and lend long - rising short rates directly raises banks' cost of funding.

And yep, any heavily levered company (including REITs) is going to have a bad time.

LOL thank you

Yeah I'm still researching around how high i/r underperformers actually performed in the mkt.

I can't see the link though, requires login. Healthcare meaning pharma stocks or services?

 

[Shiny Things]

Yes it's all about finding out how to make money in the inevitable event where i/r finally starts to rise again. Be it 25 bp or 100bp. Currencies and bonds iirc, wld be the first to react.

Yeah I'm still researching around how high i/r underperformers actually performed in the mkt.

I can't see the link though, requires login. Healthcare meaning pharma stocks or services?

The article's not gated if you get to it through Google - so copy the URL from the link, paste it into the Google search box, and go from there. Silly paywalls.

And yeah, currencies and bonds will be the first to move (if anything, bonds will move before the Fed moves, as they price in the change from a steady Fed to a hiking Fed). These stock recommendations are over a longer period - a couple of years or so.

And when they say healthcare, I guess they mean everything - the contents of the XLV healthcare ETF are a good place to start.

 

[SpinFire]

So, as a change from all the insane rubbish that's infested this thread, I've got an actual answer for you.

Tech and healthcare tend to outperform in environments of rising interest rates, according to S&P research from 2010 (boy, they were a bit early). Financials and materials tend to underperform. (You'd think consumer discretionary would underperform as well.)

Financials underperforming makes sense, because banks borrow short and lend long - rising short rates directly raises banks' cost of funding.

And yep, any heavily levered company (including REITs) is going to have a bad time.

Interesting read. But I wonder why healthcare and tech will benefit from a rising interest rate environment. The research findings were based on analysis of past trends.

 

[Mecisteus]

Interesting read. But I wonder why healthcare and tech will benefit from a rising interest rate environment. The research findings were based on analysis of past trends.

and will you bet that past trends can repeat again? i wont bet on that.

if it is really so certain, everyone would dump their life savings into predictable sectors that can outperform in anticipation of a rising interest rate. the truth is, nobody can really find out when the rise will start to happen. in 1, 3, 5 or 10 years time?

but i cant comprehend why healthcare is recommended in a rising interest rate environment. this is one of the defensive sectors so it should be considered in any environment as long as the valuation is attractive.

 

[Dividends Warrior]

Interesting read. But I wonder why healthcare and tech will benefit from a rising interest rate environment. The research findings were based on analysis of past trends.

Maybe bcos pay in installments?

 

[458italia]

a trading idea will be REITS....check out the stock of capitaland

 

[kebinu]

actually all these topics are quite academic and theoretical. we can discuss until tomorrow as different people may have different views. but whats the point? can those macro knowledge of yours translate into money marking strategies? if you think yes, then good for you.

for me personally, i prefer to do micro views of companies. find those companies that are trading at reasonable valuations, good dividends record, consistent growths, etc, etc.

The most sensible words I see here! We can discuss so much so much, what give us the money? Our actions.

 

[SpinFire]

and will you bet that past trends can repeat again? i wont bet on that.

if it is really so certain, everyone would dump their life savings into predictable sectors that can outperform in anticipation of a rising interest rate. the truth is, nobody can really find out when the rise will start to happen. in 1, 3, 5 or 10 years time?

but i cant comprehend why healthcare is recommended in a rising interest rate environment. this is one of the defensive sectors so it should be considered in any environment as long as the valuation is attractive.

Yeah, the financial world is always changing. Especially in this new era of money printing by central banks. Even Japan has joined in the game with their inflation-targeted monetary policy.

I like this phrase - The 19th century belonged to England, the 20th century belonged to the U.S., and the 21st century belongs to China.

 

[Majestic12]

The most sensible words I see here! We can discuss so much so much, what give us the money? Our actions.

That goes without saying. Discussions help to assign a probability to the different forks in the road where we are headed.

 

[killer]

much of the loans given out by our banks ( or at least recent loan growths) are property loans. should a big rise in interest rate happen and the property market crash, financial may not be that good of a sector.

generally big rises in interest rate are to combat inflation. the group that benefits the most is conservative savers and bond buyers. equity may not be so hot, and may signal the next phase of recession

 

[SpeedingBullet]

This thread is worth digging judging the recent market reactions to botak's speech

 

[Minx99]

actually all these topics are quite academic and theoretical. we can discuss until tomorrow as different people may have different views. but whats the point? can those macro knowledge of yours translate into money marking strategies? if you think yes, then good for you.

for me personally, i prefer to do micro views of companies. find those companies that are trading at reasonable valuations, good dividends record, consistent growths, etc, etc.

Hey, you made a good point! I am getting a headache trying to follow their arguments

 

[SpinFire]

This thread is worth digging judging the recent market reactions to botak's speech

Yeah, we probably got a prelude to what will happen if interest rates rise. Stocks will plunge! But the sell off the other day was also partially due to the sell off in Japan.

 

[Opps-gal]

No need to discuss so much. Just put a portion of money in both areas to cover the best of everything.

 

[eng80425]

The most sensible words I see here! We can discuss so much so much, what give us the money? Our actions.

Most academics and professors are poor btw. If all the theories are so fool proofed, all of them will be in the top richest list already.

 

[Mancunian2]

This is pretty much a chicken and egg thing.


Higher interest rate leads to higher inflation
or
Higher inflation leads to higher interest rate


Currently, Ben Bernanke is pegging interest rate to inflation & unemployment. So, I'd say it's the LATTER at least for these few years. And when the inflation is too high, Ben Bernanke might then lower the interest rate to adjust the inflation and that would be the FORMER.

In Singapore, we have high inflation with low interest rates the past few years

 

[chopra]

In Singapore, we have high inflation with low interest rates the past few years

i think u have already figured out.

QE is flowing to where? pretty obvious. Let's see if the bullrun will form a bubble, if it have had not.

 

[Dividends Warrior]

In Singapore, we have high inflation with low interest rates the past few years

Singapore's high inflation is rather skewed......mainly bcos of housing costs and COE prices....

This year's inflation seems to be lower though.......

 

[SpeedingBullet]

It's a-coming, and sooner than expected

Yellen Retreat From Policy Thresholds Doubted as Yields Rise - Bloomberg

Yellen speaks for hour, market only hears three words "around six months"

Fed tapers another $10 billion

Despite a seemingly dovish tone, markets recoiled at remarks from Yellen, who said interest rate increases likely would start six months after the monthly bond-buying program ends. If the program winds down in the fall, that would put a rate hike in the spring of 2015, earlier than market expectations for the second half of the year.

The relatively dovish Yellen talked more like a hawk yesterday.

US treasury yields up. Shell, Exxon & Unilever issuing bonds for the first time since donkey years ago, obviously to lock-in on low rates.

Bought myself an insurance stock awhile back to position myself. I would buy more if the really good ones weren't so expensive! Damn EMH..