Best Stocks To Buy When Fed Raises Rates

Ongoing interest rate hikes have become commonplace in today’s economic climate. And while the Federal Open Market Committee’s decision to raise its benchmark metric significantly impacts the broader financial landscape, investors are often the most exacting in analyzing its practical implications.

Indeed, soaring lending rates are usually a negative phenomenon for most people. Consumers face rising borrowing costs, commercial activity slows down, and publicly-traded entities lose value as their earnings are ground into the proverbial dust.

However, amid all the doom and gloom, there are certainly occasions for growth. In fact, many stocks actually thrive in harsh fiscal conditions, especially those that can generate revenue precisely because rates are going up. Moreover, companies in industries traditionally seen as reliable during downturns are also popular, as traders prefer a safe haven to more risky ventures.

Knowing which stocks to invest in is crucial to gain a winning market edge so we’ll look at three unique sectors and see if it’s possible to turn a profit when most other traders are bailing out.

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Consumer Staples

Consumer staple stocks play a critical role in many portfolios, especially when a recession is on the cards. These firms exhibit non-cyclical characteristics, providing investors with a sense of safety and peace of mind.

Although consumer staples may not boast the highest earnings or year-on-year revenue growth, they do offer other compelling advantages. Typically, these stocks belong to large, well-established companies with a history of dependability, and disruptions to the sector have been historically minimal.

One aspect to monitor when evaluating a consumer staples company is its ability to manage cost increases. While this factor gains prominence in the course of inflationary periods, it remains significant for long-term growth. Ingredients, labor, and distribution costs may rise faster than the company’s ability to adjust prices accordingly, resulting in temporary margin weakness. However, price increases must be balanced against the risk of consumers opting for cheaper alternatives.

A great example of a high-performing consumer staples brand is Church & Dwight. Despite being smaller than its industry peers, CHD has demonstrated a remarkable track record of delivering strong returns on invested capital while staying committed to its core focus on personal care and household goods.

The company boasts a solid portfolio of products, which has proven resilient even during challenging episodes such as the pandemic. In fact, Church & Dwight experienced increased sales throughout this time. Building upon the success of its famous brands like Arm & Hammer, the company has expanded its offerings to cater to evolving consumer needs. Indeed, CHD improved its worldwide net sales by 3.6% for the fiscal year 2022 while maintaining a respectable adjusted operating profit margin of 18.9%.

Utility Stocks

Due to their unique characteristics and resilience, utilities have long been favored as an attractive investment when interest rates rise. These corporations provide households and neighborhoods with electricity, natural gas, and water. Irrespective of economic circumstances, the need for these vital amenities remains constant, giving utilities a source of income and protection against market instability.

One notable company in the sector is American Water Works. Being the foremost water and wastewater utility in the United States, it’s in a favorable position to benefit from the increasing need for water-related amenities.

The firm primarily raises revenue by providing retail and manufacturing clients with regulated water solutions and involves itself in market-oriented actions, providing facilities to homeowners and other end users.

The company’s prospects appear promising, as it aims to achieve a compound annual growth rate of 7% to 9% in its earnings per share between 2023 and 2027. This ambitious growth target places AWK among the fastest-growing utilities in the country.

The company’s strategic aim is to invest between $14 billion and $15 billion in expanding its capital investment plan, which will support improvements and future acquisitions, further strengthening its position in the market.

In general, utilities have to function within highly controlled and legislated environments. Government agencies oversee the pricing policies of these companies, often granting them a certain level of exclusivity in their specific domain. This gives utilities a degree of stability, as it helps protect their revenue and ensures a fair return on their investments. Such predictability makes utility stocks particularly attractive to investors seeking steady income and a measure of security.

Moreover, utility stocks are known for their dividend-paying nature. The relatively secure cash flows these companies generate enable them to distribute a portion of their earnings to shareholders by way of dividends. As interest rates rise, utilities’ dividend yields become even more appealing to income-focused investors seeking returns in a potentially higher-yield milieu.


Banking stocks also present compelling investment opportunities when interest rates are on the up. These stocks encompass companies that offer lending, credit card, and insurance products, and while banks are a prominent component of the sector, they can include fintech startups too.

Importantly, however, all these businesses have the wherewithal to benefit from higher borrowing costs. Indeed, as interest rates increase, banks can charge higher rates on loans and credit cards, resulting in improved earnings.

Moreover, insurance companies can earn higher returns from their fixed-income investments as bond interest rates rise. Therefore, the possibility of increasing interest rates can drive the financial sector, boosting its profitability.

The financial sector has likewise witnessed significant innovation driven by fintech advancements. Technologies such as cryptocurrency, mobile payment apps, and chatbots have disrupted traditional financial services and opened up new avenues for growth. By embracing these innovations, financial sector companies such as Block and PayPal have positioned themselves for further expansion and adaptation to evolving customer needs.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.