Learn how to invest in stocks with prolonged high-interest rates.
The Federal Reserve kept interest rates steady for the seventh consecutive time in their Wednesday meeting, with only one cut projected for the year, compared to the three they initially expected in December. Inflation concerns have cooled down following softer than expected Consumer and Producer Price Index reports this week, which contributed to record highs for stocks. Traders are predicting the Fed to maintain rates in July, meaning they'll stay at their current 23-year peak until at least September.
But how should traders invest in a higher-for-longer rate environment? Before the Bell talked to Wylie Tollette, chief investment officer at Franklin Templeton Investment Solutions.
Before the Bell: What does higher-for-longer interest rates mean for the stock market?
The stock market tends to look forward, and it may have already integrated the fewer rate cuts expected. The expectations for rate cuts have been decreasing throughout the year. Despite predictions that higher rates would significantly impact the economy sooner, it appears the economy has been more resilient than expected. Our new hypothesis is that these higher-for-longer rates represent a return to a more normal rate environment.
Which stocks could underperform due to higher-for-longer rates?
Certain sectors will feel the effects of higher-for-longer rates. For instance, real estate is already being impacted, especially commercial properties like offices and retail. This trend is likely to continue. Additionally, larger purchases like cars will become more expensive, slowing down or negatively affecting consumers. Smaller-cap stocks, regardless of their sector, are likely to be affected more in this environment.
Which stocks could perform well in a higher-for-longer rate environment?
Semiconductors could continue to do well, as they're hardly reliant on financing for internal growth and investment. They've also experienced strong growth prospects, especially among Big Tech.
Energy and materials also tend to fare well in higher-for-longer rate settings.
Interestingly, utilities have been rallying, and we believe this could continue. There's a growing demand for electricity with the rise of electric vehicles and artificial intelligence. The industry is under pressure to increase supply, presenting an intriguing opportunity for growth.
Unhappy workers may reduce global GDP by up to 9%, Gallup estimates
A report released this week by Gallup suggests that people's negative emotions and decline in well-being can negatively impact worker engagement and the economy.
According to the report titled "State of the Global Workplace," low employee engagement costs the global economy $8.9 trillion (9% of global GDP) due to unhappy employees.
Gallup's annual World Poll surveyed 128,278 employees in over 140 countries last year, revealing that approximately 20% of workers worldwide frequently experience loneliness, anger, or depression. About 41% deal with high levels of stress.
Youths (22%), remote workers (25%), and the most disengaged employees (31%) were most likely to report feeling lonely.
Although work is not always the reason for negative emotions, employers should be aware of the consequences. Positive work experiences can promote employee well-being, while negative experiences can worsen it.
Notably, half of the engaged workers reported high levels of life satisfaction, implying a positive connection between job engagement and overall well-being. This emphasizes the importance of investing in employee engagement.
Researchers discovered that not enjoying one's job can have a negative impact on a person's wellbeing, possibly even more so than not having a job at all. Their findings concluded that those who dislike their work often experience extensive daily stress, worry, and other negative emotions. These feelings are equivalent or even worse than those experienced by the unemployed.
More information can be found here.
In other news, Apple surpassed Microsoft on Thursday to take the title of the most valuable public company in the United States. The announcement made at Apple's annual Worldwide Developers Conference about generative AI features for iPhones spurred this increase in value. Apple's market cap closed at approximately $3.29 trillion, just above Microsoft's $3.28 trillion. Apple's shares saw a 0.6% rise on Thursday, while Microsoft's shares grew by 0.1%.
Last week, Nvidia grabbed the second spot, leaving Apple in third place. However, Apple has since regained its top spot.
Details are available here.
