Ouch.
That was one of my longtime friends’ reply this week when he asked for an update on my ongoing home purchase and I told him I’d locked in a mortgage rate in the high 6s.
The current belief on Wall Street is that interest rates are likely headed higher. Inflation remains above the Federal Reserve’s target, and Fed Chair Kevin Warsh is considered a “hawk” who won’t have any problem raising rates to tamp down rising prices.
According to CME’s FedWatch Tool, there’s a 77% chance that the central bank raises rates by the end of the year.
Furthermore, though the 10-year Treasury yield (a key economic indicator) is near multiyear highs at around 4.65%, Chief Income Strategist Marc Lichtenfeld believes it could poke above 5% over the next year.
What does that mean for investors?
Well, for starters, as Marc explained in an interview with MarketBeat this week, it means investors have more alternatives beyond stocks. When interest rates tick higher, it’s good news for cash accounts such as savings accounts and certificates of deposit (CDs), as well as Treasurys and corporate bonds.
However, that doesn’t mean there aren’t still opportunities to be found in the stock market.
After briefly touching on interest rates and the U.S.’s historic support of the yen last week, Marc spent most of the interview discussing three stocks that should benefit as interest rates rise:
- A “dirt cheap” financial services company that’s raised its dividend by an average of 7% annually over the last decade
- One of the largest banks in North America (but probably not the one you’d expect)
- A Big Pharma company that owns the highest-selling drug in the world.
To get the names and tickers of all three stocks, click the image above.
Marc will also be evaluating a financial stock in his Safety Net column next week. If you have a stock you’d like him to evaluate, drop it in the comments section below.