Market Overview

4 Rate-Sensitive Ways To Play The Great Rate Hike Of 2015

4 Rate-Sensitive Ways To Play The Great Rate Hike Of 2015
  • Buckingham Research believes the Fed rate hike is a clear buying opportunity for rate-sensitive stocks.
  • Rate-sensitive stocks are down about 2 percent in 2015.
  • Buckingham believes that the benefits of higher rates will soon lead to upward 2016 EPS revisions.

The highly-anticipated first rate hike of the Federal Reserve’s new tightening cycle finally came this month. Now that the Fed finally pulled the trigger, traders are looking for the best way to trade rising rates.

In a new report, the Buckingham Research Group analyst James Mitchell discusses whether or not the rate hike is a buy or a sell signal and which stocks will be impacted.

Clear Positive

According to Mitchell, the rate hike is a “clear positive” for rate-sensitive stocks. He believes that material benefits of higher rates are not yet priced into many money center bank stocks, implying that upward 2016 EPS revisions could soon be on the way.

Buying Opportunity

Mitchell points out that the average rate-sensitive stock under Buckingham’s coverage is down about 2 percent in 2015, meaning that the first rate hike is a “buy the news” event.

“While some investors have expressed concerns around a 'one-and-done' event and/or a potential flattening yield curve (and why we believe the stocks have not rallied into the rate hike, along with reduced end-of-year risk taking by investors), we believe these concerns are overblown,” Mitchell explained.

Stock Picks

Buckingham expects that top rate-sensitive stocks will see three benefits to rising rates: higher net interest margins and revenues, gradual elimination of money market fund fee waivers/higher broker sweep deposit fees and potentially higher FICC trading revenue.

Buckingham’s four most rate-sensitive names include State Street Corp (NYSE: STT), Raymond James Financial, Inc. (NYSE: RJF), Bank of America Corp (NYSE: BAC) and Bank of New York Mellon Corp (NYSE: BK).

Disclosure: the author owns shares of Bank of America.

Latest Ratings for STT

Jan 2021Credit SuisseMaintainsNeutral
Jan 2021Goldman SachsDowngradesBuyNeutral
Dec 2020Morgan StanleyMaintainsOverweight

View More Analyst Ratings for STT
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