It is conventional wisdom that rising interest rates are bad for the stock market, and there is no denying that in 2022 most stock prices fell as interest rates shot up. But John Buckingham, editor of The Prudent Speculator newsletter, points out that periods of rising interest rates are more often correlated with good performance for stocks — especially value stocks.
In a report on Feb. 14, Buckingham listed “10 inexpensive and generous yielding stocks” that have “buy” ratings from The Prudent Speculator. They are listed below, with his comments about each company. Markets took a hit in 2022 as the Fed rapidly moved interest rates higher in a bid to contain inflation. We are still in rate-increase mode, but from a higher base. The stock market is taking it in stride, with the S&P 500 SPX increasing 7% so far this year.
According to Buckingham, an analysis of 50 years of stock-market and interest-rate data shows that “stocks are generally indifferent about the interest rate environment.” In the Feb. 14 report, TPS included this chart, summarizing excess returns above risk-free rates during months of rising or falling interest rates. Those are returns in excess of what people earn on money kept in cash. A year ago, the federal-funds rate was still locked in a target range of zero to 0.25%. The range is now 4.
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