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Rising Interest Rates and their Effects

Changes in interest rates may have influence over the performance of companies. This in turn may reflect on the movement of your stocks. One consideration you should make is what you shall do if the interest rates start to persistently rise.

On the other hand, rising interest rates don't affect in the same way all of the companies. This means that one company may benefit from the rise, whereas another may experience significant suffering.

So, as an educated investor you should be able to determine which companies will not suffer the negative effects of rising interest rates.

Interest rates experience smooth rise. At first their effects are not felt. But often a point is reached where consumers start to feel their negative consequences. As a result consumers' purchasing decisions are affected.

When interest rates increase to unsound levels, they become a burden regarding the purchasing decisions of consumers.

Some of the most popular lending products while interest rates are low include:

  • Home equity loans
  • Home mortgages
  • The refinancing of mortgages

However, when interest rates are high, these products start to lose their appeal.

On the other hand, as you know someone should win from this position. And the winner from rising interest rates is credit card providers. The increase allows them to compensate for the their lost credit card balances, which has been experienced when costumers have put off credit card debt through the use of home equity loans.

No matter how high interest rates may get such products that you use on daily basis as tooth paste or toilet paper will not be greatly affected by the rise. On the other hand, the stocks of the companies that manufacture the products are rarely of interest to investors.

Many governments have used increase in interest rates in order to curb rising inflation. Even though the effect may be achieved, the rise may result in a slow down in the economy and business activity.

Companies that don't Suffer Interest Rate Increase

So, the next time interest rates hit the sky, try to concentrate on businesses like:

  • Consumer staple companies
  • Credit card companies
  • Other financial companies
  • Service companies (those that don't need high debt to operate their activities)

Companies that may Suffer Interest Rate Increase

Some of the companies that feel the negative effects of rising interest rates and as a result their activities may lag behind include:

  • Automaker companies
  • Mortgage lenders
  • Real estate companies

Finally, the next time the interest rates are on their way to hit the sky, make careful examination of the companies that may suffer the increase and avoid investing in them. Try to find companies that will not be affected or even can benefit from the rise and concentrate your efforts on them.

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