How Will Rising Inflation and Interest Rates Affect Your Stock Portfolio?

Inflation is running at its highest rate since 1982, and the Federal Reserve is expected to raise interest rates several times in 2022 alone to try to keep it under control. In this Fool Live video clip, recorded on Jan. 10, Fool.com contributors Matt Frankel, Jason Hall, and Danny Vena discuss how inflation and rising rates could affect some of their favorite stocks, as well as the companies' underlying businesses. 

Matt Frankel: It's fair to say that a lot of this growth sell-off is because of interest rate expectations and inflation expectations. If interest rates and inflation continue to spike in 2022, let's say, as we were talking, Jamie Dimon said we're going to get at least four Fed rate hikes this year, he thinks. That would be more than expected. If we continue to get interest and inflation running high, what do you think that would mean for some of the stocks in this list? You can pick one or two to mention an effect on if you want. If you want me to go first, anyway.

Danny Vena: I'll go ahead and go first. When you look at companies like Nvidia (NVDA -3.87%) and MercadoLibre (MELI -0.00%) and I'll just pick those two since the ones I brought to the table, I don't think interest rate hikes are really going to make much difference to their businesses. These are companies that in the case of MercadoLibre, you're talking e-commerce and payments and MercadoLibre gets up a piece of each transaction that happens on its platform. I don't think that's going to change anything. With Nvidia, I think high-end gamers are going to continue to buy Nvidia's chips. I think that high-end data platforms and cloud computing operations are still going to use them, so no change in those two.

Jason Hall: I think it's worth mentioning for, this doesn't directly answer your question, but I think it's important. I think for Boston Omaha (BOC -0.52%), because of the acquisitive nature of its business and the deal-making that they're doing, higher cost of capital could be a risk. It could affect its ability to capture the best returns over time. I think that's something investors need to be a little bit meaningful of.

With Lemonade (LMND -1.93%), they're going to need to continue to add capital. It could also weigh on their business and also because they are not at the point where they're like a regular insurance company that has float, that tries to make money from the float, they don't necessarily win from the upside of higher interest rates and a lot of other insurers are dying to get.

Frankel: Their CEO told me that investment income is going to be part of their strategy but it's really not there yet.

Hall: It's five years plus.

Frankel: In terms of mine, it's really a binary. Bank of America (BAC 1.59%), I mentioned is likely to be a big beneficiary if we see rates and inflation continue to rise more than expected. If you're in a business that lends people money, you want interest rates to be all other things being equal, you want interest rates to be high. As long as interest rates don't go high enough to where they really cost consumers to pump the brakes on spending, I think it's a big positive for Bank of America. As far as Pinterest (PINS 0.21%), it would weigh on their stock price. I think we'll see growth stocks under pressure as long as interest rates and inflation continue to run high. A big part of this giant booming growth stocks in the past few years has been because we've been under record low-interest environment.

Hall: Least adjusted rate of return rate.

Frankel: These companies can raise capital for nothing in a lot of cases. How many companies in our tech universe completed convertible debt offerings at zero percent interest rates in 2020 and 2021?. Literally, for nothing with the promise of you can buy stock at some point. It's if we still keep seeing it run hot, I think it's going to continue to weigh on the tech sector, unfortunately.