In case you missed it… the market ran into some serious selling pressure at the start of February, that briefly pushed the overall market into correction territory.
While there was no real negative news driving the market lower, there was enough good news to spook Wall Street into selling stocks due to the fear of rising interest rates. Low unemployment, and rising wages are good news for U.S. consumers, but the problem with rising wages is the potential for inflation. Inflation is not a bad thing, but the markets have been so used to no inflation, that any signs of possible inflation result in speculation that the Federal Reserve will be forced to lift interest rates quicker than previously expected.
After years of near-zero interest rates, the Fed already started to lift rates over the last year, which to this point has not really put the brakes on the economy or the bull stock market, but if rates start to rise quicker than expected, there could be a serious money transfer out of stocks and back into traditional fixed income assets.
That is the fear, and that is the driving force behind the recent market weakness.
While President Trump has stated that the market should go higher with good economic news, history proves otherwise, and it is not surprising that overwhelmingly goods news will spook traders into fearing higher interest rates.
The good news is that the overall economy does seem to have solid fundamentals, and that even if interest rates continue to rise, they will remain very low on an historic basis.
Some market analysts argue that a periodic sell off is actually good for a bull market, and I tend to agree. The markets had definitely enjoyed a strong run in January, so it is not surprising that some profit taking came in and drove stocks lower. Having said that, I believe the sell off was overdone, and that stocks will continue to make back some of their recnt losses as they have over the last few trading sessions.
Assuming that higher interest rates are coming, and that they will put additional pressure on the market, one way to hedge against that is by investing in stocks that react favorably to higher interest rates.
Here are a few stocks to consider as interest rates rise.