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It’s Not Just Bank Stocks That Rise With Rates

Althea Chang
Big Data Download
It’s Not Just Bank Stocks That Rise With Rates

Big bank stocks may perform well when interest rates rise, but consumer discretionary stocks also get a boost along with interest increases, according to recent stock analyses.

"Stocks overall tend to rise when interest rates rise during this bull market and fall when interest rates are falling. While the market may like low interest rates, the don't necessarily like the way we get there," said Paul Hickey of Bespoke Investment Group.

Bespoke examined the performance of S&P 500 components during periods when 10-year treasury rates rose and fell.

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Financial stocks rose 41 percent on average when interest rates rose, according to Bespoke's research. But consumer discretionary stocks see substantial gains when interest rates rise as well. Consumer discretionary stocks have historically gained about 29 percent during periods when interest rates rise, according to Bespoke.

"Whirlpool is in the consumer sector, and what you're going to see there is improved housing and improved employment. People are going to be more apt to buy those big-ticket appliance items," Hickey noted. "I think what it is is a sign of the economy doing better and interest rates rising, so the consumer is going to benefit from an improved economy and an improved housing market. So as you see employment and the housing sector pick up, it's going to be good for stocks in the consumer discretionary sector," Hickey said.

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Schwab and Morgan Stanley are among the financial stocks that rise the most when interest rates rise, Hickey said.

"[They're] among the top 10 best performing stocks in the S&P 500 when interest rates are rising, but they're also among the bottom ten in performance when interest rates are falling. So when interest rates are rising, you want to be in these names, and when you do see a shift in interest rates, when interest rates come lower as a return to fear in the markets, you want to be out of these names," Hickey said.