The Compound: The Recession We Deserve

The Federal Reserve started raising interest rates in 2022. At the time, investors thought the central bank would make only a few small increases. Instead, the Fed increased until mid-2023, going from zero percent to 5.5 percent.

Now, the bank has been hinting at interest rate cuts later this year. That suggests that interest rates may have peaked. As a rising interest rate environment helped the stock market decline in 2022, interest rate cuts may be bullish.

But some sectors may fare better than others. Many investors may see the value of interest-rate sensitive stocks such as utilities or real estate.

History suggests that the biggest beneficiaries may be growth stocks and small caps. These are companies that typically have to pay up for financing compared to large institutions.

As these companies are able to secure funding more cheaply, they could take off. And they could see rising demand as lower interest rates spur growth in general.

These companies tend to benefit during the initial rate cut stage.

Later on, larger companies and growth stocks can still continue to trend higher. But their returns are usually lower.

Investors will have a number of options available to benefit from interest rates being cut later in the year.

And for now, investors can continue to benefit from the current bull market, but may want to shift to rate-sensitive sectors in the coming months.

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