The Federal Reserve has been reducing the interest rates for about seven years in order to spur an economy in recession. Lowered interest rates make corporate and consumer loans easier to acquire. This, in turn, puts more money in circulation to boost the economy. However, this injection of money cannot be left unchecked. A rapid growth in the economy can lead to inflation which will render the economy undervalued. Thus, the fed will then have to hike interest rates to keep the economy at a steady growth pace.
Today, we are at the point where it’s time to increase the interest rates. In fact, the Federal Reserve has already started the rate increase. It will, of course, be a slow process. But still, the truth is it has already started. Now you as an investor must adjust accordingly. Different companies will be affected by this event and you must be ready to put your money in the stocks that will matter. To help you decide, we have researched and narrowed the most probable stocks to avoid as the fed hikes interest rates. Here are the companies which you must be cautious of.
Colgate-Palmolive is one of the most common household names in the country and yet it is facing major competitions to remain just that. The company is already facing a high-floating rate debt that forced it to cut cost, increase prices, and endure volatility to keep itself from losing more profit. The stronger dollar and steadily rising interest rates has affected the company negatively as 80% of its revenue comes from abroad. In the third quarter of 2015, Colgate-Palmolive has already lost 13% with sales in Latin America plunging by 11% where more than one-quarter of the company’s sales come from.
The American global information technology company has a good track record against the broader market. However, it’s earnings and revenues are still on a downward slope. This left them with no choice but to cut down the operating cost in order to stay relevant in the market. The fact is Hewlett-Packard is slowly fading away with the mass of new technology companies that are continually expanding and growing to take its place. The competitive technology market is steadily excluding the once technology powerhouse. It also doesn’t help that it still uses traditional hardware such as printers to pull them out of the gutter. Meanwhile, it’s competitors have already made significant advances using cloud computing and mobile solutions while Hewlett-Packard remains conventional. All in all, it is highly likely that the company will be significantly affected by the rising interest rates and unstable emerging markets.
Johnson & Johnson
One of the S&P 500’s most dominant company’s, Johnson & Johnson has been showing a weak performance in a little more than over two years with no signs of improving anytime soon. The company is currently wrestling with a constantly changing global economy to acquire an organic growth. The sudden influx of the US dollar has hit the company and with almost half of it’s revenue depending on overseas business, Johnson & Johnson has certainly struggle in recent years. It doesn’t stop there. The dollar is predicted to even grow stronger in the next years and it will surely drag the company even more. For the third quarter of this year, the company dropped by 7.4% with the loss being attributed to the 0.8% increase in operational costs and a negative currency impact of 8.2%.
The increase in interest rates that the Federal Reserve is imposing will definitely affect all stocks in some kind of way. The economy itself will slow it’s growth and the financial system will also change. The best thing you can do as an investor is to keep vigilant and always research before any decision.