Investors may consider looking into to financial and energy sector ETFs as the Federal Reserve raises benchmark interest rates.
According to Kensho data, since 2008 when the 10-year Treasury note yields increased 25 basis points or more over a span of 30 days, the financial and energy sectors tend to beat the rest of the stock market, CNBC reports.
Specifically, the Financial Select Sector SPDR (NYSEArca: XLF) returned an average 3.1% over a one-month span when rates were rising while the Energy Select Sector SPDR (NYSEArca: XLE) gained an average 2.8%.
Kensho data also revealed that consumer discretionary and technology stocks also increased 2.3% and 2.0%, respectively, over the 18 instances when the 10-year Treasury note yields increased 25 basis points or more over a span of 30 days since 2008.
On the other hand, the bond-proxy utilities sector, along with health care, have been among the worst off segments when rates rise.
Interest Rates Push Higher
With strong data like a historically low unemployment and expanding corporate profits bolstering the economic outlook, interest rates have pushed higher in the past few weeks. The government revealed the unemployment rate slipped to 3.7%, a level not seen in nearly half a century. Additionally, average hourly earnings rose 8 cents or 0.3% in the past the month, matching August’s gain and hinting at rising inflation.
In response to the promising economic data, the Federal Reserve has justified its third quarter-point rate hike in September and issued plans to continue to gradually raise interest rates if the economy sustains its current pace. The central bank also upwardly revised economic growth this year to 3.1%, citing manageable inflation and an unemployment rate of 3.9%.
Fed Chair Jerome Powell also recently stated that the central bank is “a long way” from a neutral level of interest rates, suggesting more hikes are on the way.
For more information on the market sectors, visit our sector ETFs category.