4 Financial Stocks To Buy Ahead Of Interest Rate Hike

The long wait for a rate hike will likely be over by the end of September. According to market rumors, when the meeting of the Federal Open Market Committee (“FOMC”) will take place during Sep 16–17, the first rate hike in almost a decade will be announced

Given the recent selloff in equity markets and apprehensions about China’s economic slowdown, there are fresh concerns about the Federal Reserve’s decision to go ahead with the interest rate increase. Significantly lower oil prices are also there to hold the Fed back.

Nonetheless, situation on the domestic front looks quite reassuring. The release of GDP “second” estimate by the Bureau of Economic Analysis on Aug 27, 2015 depicting an annual GDP rise of 3.7% in the second quarter of 2015 and a slight rebound in oil prices were enough for analysts to reaffirm their prediction for a rate hike in September.

Moreover, remarks of the Fed’s Vice Chairman Stanley Fischer, at an annual economic conference speech in Jackson Hole, WY, further reinforced the view. He believes “there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further.”

While announcing its interest rate decision in July, the FOMC said, “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”

Additionally, before the Fed takes its call on rate hike in September, there will be more economic data to examine. The August job report (coming out on Sep 4) and the latest Survey of Economic Projections will be taken into consideration before reaching any decision. Fischer, in his speech, stated, “At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual.”

Therefore, the door is definitely open for a rate hike next month.

So now it is time for investors to make some wise decisions by investing in stocks of those sectors that benefit from higher interest rates. In this regard, the finance sector seems to be a good bet.

How to Pick Stocks?

In such a vast financial sector, it is not easy to choose a few favorable stocks that are also fundamentally strong. Hence, to make this difficult task easy, we have used our new style score system. The attractiveness of these stocks as an investment option at this stage is confirmed by their Value Style Score of ‘A.’ Also, they carry a favorable Zacks Rank.