BOOYAH from Texas! Stocks were mixed this week as the Fed raised short-term interest rates by 25 basis points (or 0.25%). It seems the Fed is not going to stop raising interest rates even after it hits 5%, which probably comes at the May FOMC meeting.
That’s bad for banks, such as Bank of America (BAC), City Group (C), and Wells Fargo (WFC). Why does rising interest rates affect these mega banks as well as small to mid-banks? Economy always matter when investing in stock markets. When interest rates are rising, investors never see a stock of one particular bank goes up while those of other banks go down.
When you invest in stock markets, you need to study about what the current economy is, and then study the industry, such as financial, technology, energy, and so on. Finally, you study the stock you want to invest.
When rising interest rates, banks are always struggle with lending money to companies. For us, it looks nice because we have more interest income from our saving accounts or if you put money in CDs (Certificates of Deposit). However, with higher interest rates, it is not favorable to companies, especially those who have a lot of deficits. Companies want to loan the money from banks to increase their productivity by investing a large amount of capital. Then, with higher interest rates, companies do not want to loan money from the banks because they need to pay higher interest expense. For the companies that have a lot of debt, they have difficulty in paying off debts due to higher interest rates.
Therefore, companies don’t have much demand for borrowing money from banks. Thus, banks are struggled with higher interest rates. It is all about “supply & demand.”
That’s why interest rates matter. When the interest rates’ hike is about to finish, more investors coming back to the stock markets because lower interest rates means good for companies.
The simple rule is this: buy bank stocks when about to finish raising interest rates. When you buy banks stocks after the Fed start to lower the interest rates because remember “buying stock is a bet on the future, not the past or even now.” Sell the bank stocks when the Fed is about to start raising interest rates.
As I said, the Fed is not going to stop raising interest rates even when hitting 5% in May and to continue through the later this year. As soon as you get some anticipation that the Fed is about to stop hiking the rates, you should start buying bank stocks. That makes you rich in a way!
That’s bad for banks, such as Bank of America (BAC), City Group (C), and Wells Fargo (WFC). Why does rising interest rates affect these mega banks as well as small to mid-banks? Economy always matter when investing in stock markets. When interest rates are rising, investors never see a stock of one particular bank goes up while those of other banks go down.
When you invest in stock markets, you need to study about what the current economy is, and then study the industry, such as financial, technology, energy, and so on. Finally, you study the stock you want to invest.
When rising interest rates, banks are always struggle with lending money to companies. For us, it looks nice because we have more interest income from our saving accounts or if you put money in CDs (Certificates of Deposit). However, with higher interest rates, it is not favorable to companies, especially those who have a lot of deficits. Companies want to loan the money from banks to increase their productivity by investing a large amount of capital. Then, with higher interest rates, companies do not want to loan money from the banks because they need to pay higher interest expense. For the companies that have a lot of debt, they have difficulty in paying off debts due to higher interest rates.
Therefore, companies don’t have much demand for borrowing money from banks. Thus, banks are struggled with higher interest rates. It is all about “supply & demand.”
That’s why interest rates matter. When the interest rates’ hike is about to finish, more investors coming back to the stock markets because lower interest rates means good for companies.
The simple rule is this: buy bank stocks when about to finish raising interest rates. When you buy banks stocks after the Fed start to lower the interest rates because remember “buying stock is a bet on the future, not the past or even now.” Sell the bank stocks when the Fed is about to start raising interest rates.
As I said, the Fed is not going to stop raising interest rates even when hitting 5% in May and to continue through the later this year. As soon as you get some anticipation that the Fed is about to stop hiking the rates, you should start buying bank stocks. That makes you rich in a way!
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