The stock market has been feeling the pinch of higher rates this year, as the Federal Reserve has raised interest rates five times since December. The increase stems from the recent booming economic growth and low unemployment, which have put the Fed in the position of tightening monetary policy.
As a result, stocks have been feeling the pressure, particularly those investment vehicles most sensitive to changes in interest rates. The S&P 500, Dow Jones Industrial Average, and Nasdaq even saw a sharp decline late last month when the news of additional rate hikes began to circulate.
The rate hike also has a direct impact on those individuals holding large amounts of debt. As interest rates go up, debt payments increase. Higher rates can also put a damper on areas of the equities market; for example, consumer discretionary stocks have been hit particularly hard, as higher rates create a tighter squeeze for consumers.
At the same time, however, high interest rates can actually be beneficial to some equities in the long term. Banks, for example, have seen a rise in stock prices as their ability to make money from loans improves. Likewise, those that are able to lock in low-interest rates have also seen increases in their net worth.
The truth is, not all equities will be affected in the same way by higher interest rates. While some investments may be more sensitive to rate hikes, others will remain relatively unchanged.
It’s important to remember that you should always do your research and be aware of the implications of such changes on your portfolio. This will help you make better, more informed decisions about which investments to make. In the end, when it comes to the stock market, having a long-term strategy is key for success.