Here’s a closer look at seven of the best stocks to buy now that a Fed rate hike — and maybe even a string of rate increases — could come sooner than later.
Bank of America Corp (BAC)
While most sectors and industries have been loving the low-rate (read “cheap borrowing”) environment we’ve been in for years now, there is one sliver of the market that’s hated it … banks.
Banks predominantly make money by lending money, charging interest rates higher than their own borrowing costs and pocketing the difference. Problem: The lower the economy’s base interest rate is, the less banks pocket. Higher interest rates would mean a relatively wider difference between the two rates.
In other words, banks earn more the higher interest rates are.
This is true of all banks, though not all banks are run the same. One of the better-managed bank stocks to buy should the Fed pull the trigger on a rate hike in the near future is Bank of America Corp (BAC).
Chubb Ltd (CB)
For the same basic reason, banks do better when interest rates are higher, so do insurers like Chubb Ltd (CB).
To be clear, higher interest rates don’t work in the favor of insurance companies in all ways — there are downsides. One of them is the fact that the bonds held by insurers — for the sake of safety and reliability — lose value when rates are rising just like they do for retail investors. That can crimp the value of an insurance company’s investment pool, which may be needed to pay customers’ claims.
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