Home Interest rate Winning and losing interest rates rise as the Fed tightens the screws

Winning and losing interest rates rise as the Fed tightens the screws

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Are there winners and losers on Wall Street after the latest Fed rate hike?

Now that the US Federal Reserve has announced its latest interest rate hike to calm inflation and the market has priced in a potential recession, winners and losers on Wall Street are beginning to surface.

From the usual havens in utilities (XLU) and real estate (XLRE) during economic downturns, to a return to growth stocks in big tech like Apple (APPL) and Amazon (AMZN), traders are now positioning themselves for the bear market rallies ahead.

Winners: The Usual Suspects + Mega-cap Technology

Edward Moya, senior market analyst for OANDA in New York, told Capital.com: “A strong recessionary signal brought defensive trading back to life on Wall Street, with a surge in utilities and oil. immovable.”

“The second straight quarterly contraction suggested stagflation is here, as traders brace for more bear market rallies down the road,” he said.

Real Estate Price Chart (XLRE)

Moya added, “Mega-cap technology will also become a safe-haven trade during the recession.”

“The benchmark trade on Wall Street will be cash-rich companies, decent product cycles and earnings momentum, while the traditional investor may look to typical defensive stocks,” he continued. “Massive earnings from Apple and Amazon are also boosting risk appetite.”

Amazon Price Chart (AMZN)

Losers: low-income businesses + US economy

With inflation at its highest level in four decades, ongoing supply chain issues related to the Covid-19 pandemic, and the likelihood of a recession, “traders should avoid companies with no revenue and high debt levels. “, warned Moya.

With the market pricing in a slower pace of tightening from the Fed, “it’s premature,” he said. “Inflation is unlikely to come down quickly, so the aggressive stance to fight inflation will not change drastically.”

US economy: burned by inflation, blocked by a possible recession

In an interview with Capital.com, Joey Von Nessen, a research economist at the Darla Moore School of Business at the University of South Carolina, said that “two consecutive quarters of negative growth are concerning, but some of that which is causing the slowdown is temporary”.

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According to Von Nessen, two major factors are driving today’s GDP estimates, including high inflation and rising interest rates, and “this can be seen in housing markets, where demand declined in 2022 as mortgage interest rates rise.”

“However, we are also in a period of transition as consumers slowly return to normal spending habits,” he added. “The bottom line is that uncertainty remains elevated as we look to the second half of the year, which will likely translate into increased market volatility.”

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