If You Fear Rising Interest Rates, Buy These Five Dow Stocks

Is the decade-long bull market finally over?

While no one really knows for sure, there are plenty of economic data points — notably the 10-year Treasury yield last Wednesday breaking above 3.1% (first time since 2011) — to suggest that stock gains are going to be hard to come by over the next several years. And the fact that all three major indices — despite strong Q1 earnings — are down in three of the past four weeks is another significant sign.

As I noted in Sunday’s weekly summary, fears of rising interest rates, seen pressuring corporate profits, is the most significant reason equities declined last week, leaving them 5.5% below their January highs. And it’s starting to look more and more that the highs on January 26 could have been the peak for the bull cycle, given that both the Dow and S&P 500 have languished this year, posing respective gains of 1.6% and 0.2% after returning 20% in 2017.

That said, if you believe the bull cycle might be over (or coming to an end, depending on your point of view), that doesn’t mean money can’t be made. I still expect tradable rallies to pop up every now and then, even during periods of stricter monetary policies. And if rates were to rise significantly, Goldman Sachs (GS), Microsoft (MSFT), Visa (V), Apple (AAPL) and JPMorgan (JPM) could become great investments, according to CNBC.

Citing data from hedge fund analytics tool Kensho, these Dow giants — over the past decade — returned an average of 12.1% during a three-month period when interest rates rose. Take a look at this chart.:

With average ten-year returns of 17%, Goldman Sachs leads the way, followed by Microsoft and Visa with average ten year returns of 12%. Apple and JPMorgan rounded out the top five with respective returns of 11.83% and 10.92%. While these gains aren’t necessarily breathtaking, all five stocks significantly outperformed the Dow’s average returns of 4.8% during that same ten-year period.

The fact that three financial stocks made this list isn’t too surprising, given that higher interest rates allows them to issue loans at higher rates, which boosts their bottom lines.

It may be a while before we will know with greater certainty whether the bull market is finally over. And I don’t believe the 5% decline from the recent peak is enough to come to this conclusion. But in the meantime, instead of our continued fixation on what rising interest rates would mean for the stock market, investors would be better served to prepare their portfolios to capitalize by buying stocks that tend to thrive.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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