The US Federal Reserve has raised interest rates again. And, more rate increases are in the cards for December of 2018 and into 2019. Which of your investments will prosper and which of your investments will suffer as interest rates go up? CNBC weights in on this question with an article about the best performing stocks in the Dow as interest rates go up.
While stocks like J.P. Morgan, Goldman Sachs and Visa do well when rates are surging, Walmart and Coca-Cola struggle.
Walmart averages a loss of 0.8 percent when rates rise 25 basis points or more in one month, the worst performance of any Dow member in those instances since 2008. Coca-Cola, meanwhile, drops an average of 0.4 percent.
Johnson & Johnson, Procter & Gamble and Verizon also average losses when rates rise sharply.
A recurring theme is that stocks which pay dividends act like bonds and decrease in value as interest rates go up!
Is Gold Ready for a Comeback?
The famous Warren Buffett quote is basically that you should invest in stocks that people are fearful of and avoid stocks that everyone loves. This approach often works because the market tends to overshoot to the high side in bull markets and to the low side in bear markets. In this regard Market Watch takes a look at FANG stocks versus BANG stocks.
There’s ongoing fallout from a Bloomberg report that said China planted teeny tiny spy chips in U.S. computers doesn’t look to be over. Big tech names like Apple AAPL, -0.86% came under pressure, weighing on the Nasdaq COMP, -0.58%.
The pain for investors could spread further. Apple is a top holding in the SPDR S&P 500 ETF SPY, -0.20%-a big proxy for the S&P 500-and such passive-investing vehicles have become extremely popular in this long bull market.
That brings us to our call of the day from The Felder Report’s Jesse Felder, who suggests going against the crowd with some cheap, anti-passive precious metals miners.
The so-called “BANG” stocks in mentioned in the article are gold mining stocks.
- Barrick Gold, ABX
- Agnico Eagle, AEM
- Newmont Mining, NEM
- Goldcorp, GG
These gold mining stocks are at their lowest prices in many years. And, in our article about gold and silver as liquid investments, we noted that when the price of gold starts to rise, gold mining stocks go up faster that gold bullion and when gold starts to fall, mining stocks go down farther and faster.
In the article they also make the point that so many investors have gone over to passive investing via ETFs. Because the FANG stocks are so heavily represented in index funds, they have benefited from this change in how investors invest. And, because these lonely mining stocks are in nobody’s passive investment portfolio, they are more greatly under-priced than one might expect from the price and recent performance of gold bullion. If the stock market gets hurt by higher interest rates, not to mention the trade war between the USA and everyone else, gold may make a comeback and these BANG stocks could do very well on the upswing in gold prices.
Meanwhile take a look at the dividend stocks in your portfolio and decide which of these will suffer as interest rates go up.