Market timing can be challenging as it will significantly affect your profit. If you take a closer look, there are some logical explanations behind investors’ moves during a certain market situation. Now, let’s discuss the best stocks and sectors during rising interest rates.
When the interest rates are rising, the generally balanced approach is to keep investing.
The Best Stock
During the rising interest rates, growth stock funds can be good. Since it will stay safe during the latter (mature) period of an economic cycle.
As an example, let’s take a look back at 2007. During that time the economy was growing exponentially, resulting in most of the stock market indexes had reached all the time highs.
Growth stocks dominated all stock capitalization, the large-cap, the mid-cap, and the small-cap. Then, what happened after that? That year was prior to the great recession of 2008. Rapidly growing economies met the high momentum investing strategy and rising interest rates triggered the recession.
Thus, consideration of stock that can keep you safe during the later period is important.
The Best Sectors
Again, you have to remember that rising interest rates is the sign that the economy is typically nearing the peak. So, investors who are planning to catch high returns during this period should also prepare to get protection when harder declines come.
These are the list of sectors that most likely perform better (least falling prices) when the economy and market fall.
Non-cyclical sectors
Even though cyclical stocks usually perform best in the rising interest rates period, but the non-cyclical stocks will perform better once the recession happen. The example of non-cyclical sectors are companies producing groceries, toilet papers, and other daily needs.
The reason for that is non-cyclical stocks’ consumers will stay. People keep buying groceries and products for their daily living even during the recession.
Health care
Similar to non-cyclical sectors, people will also keep buying healthcare products, like medicines and doctor consultation during good and bad times.
Gold
Gold is not a sector, but it has proven to do well in uncertain times and also during the failing markets. Thus, it also can be alternatives for your investment during the rising interest rates period.