Some mainstream media outlets covering the financial sector now write that higher interest rates are not bad. This is a dangerous assumption.
Stock markets are forward-pricing machines. They increased price-to-earnings multiples in the most promising sectors. Companies like Amazon (AMZN), Super Micro Computers (SMCI), and Nvidia (NVDA) deserved to rise in value. Their growth rates are not directly hurt by higher interest rates.
Risky stocks are in interest rate-sensitive sectors that spend heavily on capital, increase their debt, and distribute their cash flow through dividends. High interest rate levels decrease the attractiveness of that cash flow. The risk-averse investor may hold money market funds and short-term U.S. Treasury bonds. Those assets pay over 5% on minimal risk.
Markets adjusted for the increased risks I REITs and dividend income stocks by selling off. Realty Income (O), WP Carey (WPC), American Tower (AMT), Prologis (PLD), and Crown Castle (CCI) are some of the firms to avoid today. That either traded in a downtrend or fell sharply within weeks. PLD stock is down 19% in only a month, CCI -7.81%, and AMT stock -11.4% in the last month.
Your Takeaway
Have a bearish bias for stock markets. The yearly “sell in May” approaches. That would mean selling stocks, booking profits, and holding above-average cash levels.
