• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Financial Services

Ferreting Out the Bull Opportunities As Rates Rise

Plenty of sectors will be losers when the Fed does the inevitable, but there will be stocks to buy if you dig hard.
By JIM CRAMER
Nov 09, 2015 | 02:37 PM EST
Stocks quotes in this article: WY, PCL, CP, NSC, APA, FB, AMZN, NFLX, GOOGL

Now you see why I have been against a rate hike. Stocks in lots of industries go down, even as a few go higher.

But being against a rate hike and accepting its inevitability are two very different things. We need to understand the difference.

First, I get that we can't have ultra-low rates forever, even if they are good for the stock market during the duration. Eventually, too much money chases too few goods and we will get inflation.

There are reasons why we have never had ultra-low rates forever, and they have to do with the inevitable debasement our money and the possibility of a dramatic decline in purchasing power. The mandates of the Fed are to promote an environment where we can have a flourishing economy but to do so without igniting inflation, which can destroy the life savings of people and create a situation where most people cannot keep up with the prices of goods.

I certainly am not in favor of that occurring. I had been concerned that the first mandate, the one where more jobs can be created, ones that pay a decent amount, might be upended by higher rates. Right now, though, after that barnburner of a jobs number last Friday, it's difficult to fret over job losses.

I also had been worried about the precarious nature of our overseas trading partners, particularly China, with its nonstop bear market. But that ended, and China is in bull market mode.

To not worry about Europe seemed ignorant, but the data out of Europe have been strong and getting stronger. Now we know that a lot of the strength comes from the weaker euro, and the companies that sell in euros have been taking share from American companies where they are competitive -- a decidedly bad blessing.

But to worry about systemic risk from Europe or China from a rate hike? That just seems wrong to me.

There will definitely be negative reverberations in emerging markets that have to borrow to make good their obligations. That's a given. It always happens. It's another reason why I am not crazy about a rate hike. However, the ramifications are awful and you will hear about them every day for weeks.

Most important, I believe the dollar will soar, making the exports of our companies decline dramatically versus our competitors. Here we will have big layoffs as our manufacturers just can't keep up, and we have really open borders versus every other country.

So why with all of this gloom do I believe a rate hike has to occur? Because neither the stock market nor earnings matters when it comes to these things. If they did we would never lift rates. The goal of my writings is to find the bull market somewhere and profit from it.

When the Fed is lowering rates or keeping rates low, there are so many great groups to own that the only real issue is to try to figure out relative valuation. If some groups move ahead of others, then others may play catch-up.

But when rates go higher, lots of groups just go down. Let's tick down why so many groups will be losers.

First, beware if you are buying shares of stocks that yield 3% because you want that bond market equivalent. Beware because that 3% will be pitted not against the first rate hike, but the third or fourth that will immediately be talked about in addition to the second one. It won't matter what the Fed says. If we have another strong set of employment numbers in January, we're going to get another rate hike. That's just how it goes. The same people who are constantly clamoring for rate hikes will be more emboldened, not less, because that's what always happens.

So if you are buying a stock with a 3% yield thinking it will protect you, others will disagree, mainly the big holders who are hiding in these stocks for yield who will now just sell and wait for higher 30-year and 10-year rates and put the money into those bonds.

Secondly, autos and housing will peak. The auto stocks are saying that right now. They don't go up on big sales numbers anymore because big money is betting they will peak when a higher rate cycle takes off. Housing is booming in a lot of places and I expect one more spurt as people figure out it is better to buy than rent, but getting credit is still hard unless you don't need it.

I think owning stocks related to these two groups will get very hard.

Health care stocks are companies that do well in slowing times. But the big money will take its cue from the Fed, which is saying that things are accelerating or they wouldn't move at all. So portfolio managers will dump these stocks en masse. It doesn't help that we are always one Hillary tweet away from a bear market.

Retail and restaurants actually fare OK in a higher-rate environment after the initial reset we are getting now because of higher wage growth, and, in the case of retail, warm weather. They fare OK because the public has more money to spend because of the higher wages. However, because of the Great Recession era mentality, that will take a long time to take hold.

So, what can we buy when the hikes start? You got some great clues today.

You saw certain stocks, mainly the financials, simply not go down that much. They didn't go down that much because institutions want to own them so badly that they don't come in. My trust was itching to buy some banks today, but the declines were meager versus the rest of the market because that's where the bull market will be as they make more money off your deposits.

You will like all of the highest growth stocks because so much money is dedicated to finding high-growth stocks that can maintain their strength despite a rate hike. Their earnings aren't impacted by higher rates.

When their stocks come down on days like today, you want to buy them, too. Think FANG -- Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google, now Alphabet (GOOGL) -- if you are debating what I am talking about.

And then one last one to think about, and it is the most important of all, one I have not talked about in relation to a rate hike. There are plenty of companies with stocks that will do nothing or go down in a rate hike scenario. These companies will either feel the heat from activists or they will have to merge to gain heft. These will be where the real value is -- finding the potential targets because the big companies know that the cheap money days are about to end and they have to take advantage of them the way you might be more willing to buy a house before the true rates surface.

A deal, for example, like Weyerhaeuser (WY), the giant wood company, buying Plum Creek Timber (PCL), a transaction announced this very morning, is, in part, motivated by the prospects that rates are going higher and it is important to beat  those rates to the punch. Rumors this afternoon that Canadian Pacific (CP) might try to take over Norfolk Southern (NSC) or that oil and gas independent Apache (APA) might be acquired fit that bill, too.

Once again, though, I am not saying that I am sanguine about a rate hike. I am saying that I know what happens and it is not good for the vast majority of stocks. That's what you are seeing today, and all I want is for you to know it isn't revelatory and you'd better get used to it.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Action Alerts PLUS, which Jim Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Financial Services | Consumer Discretionary

More from Financial Services

Is Bitcoin Ready to Take a Tumble? Let's Check the Charts

Bruce Kamich
Mar 5, 2021 7:59 AM EST

Based on the technical patterns, the risks of being long bitcoin and other cryptocurrencies appear high right now.

Here's When to Move on Zillow

Bruce Kamich
Mar 3, 2021 2:18 PM EST

A correction in Zillow Group is unfolding, so let it play out first.

Get Some Dividend Insurance With This Stock

Bob Ciura
Mar 3, 2021 12:23 PM EST

Mercury General offers a 4.2% yield and growth promise, as it offers insurance in 11 states including California.

Time to Consider Making a Withdrawal From Webster Financial

Paul Price
Mar 3, 2021 7:00 AM EST

I typically tell you when I see opportunities to get into, not out of, stocks, but this one appears to be getting overvalued.

Square Still Looks Vulnerable Despite the Recent Bounce

Bruce Kamich
Mar 2, 2021 11:00 AM EST

SQ's overall chart picture suggests more weakness is possible.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:38 AM EST GARY BERMAN

    The INDU and DIA

    FIBOCALL: The INDU index and the DIA The INDU ...
  • 10:44 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "The Challenge of Short-Selling"
  • 08:40 AM EST PAUL PRICE

    Recent Pick SpartanNash (SPTN) Raised Its Quarterly Payout by 3.9%

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login