A rising interest rate environment can have several possible impacts on stocks, with some industries built to ride out this scenario with less volatility than others. In this segment of Backstage Pass, recorded on Jan. 10, Fool contributors Jason Hall and Toby Bordelon, joined by Fool Canada analyst Jim Gillies, discuss one such stock.
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Jason Hall: All right, guys, let's go ahead and hit a couple of these real quickly. Interest rates, I think it was JPMorgan, or one of the big banks is predicting four rate rises this year by the Fed. Most are saying there are going to be three.
That's basically a 1% interest rate increase by the end of the year. Rates are still going to be super cheap, guys, but cost of capital is going to go up for a lot of industries and a lot of companies. Jim thinks tech stocks are going to fall another 90% from here because of it. He really doesn't.
Jim Gillies: What? [laughs]
Hall: I totally made that up.
Gillies: I said 80%.
Hall: The point is this is happening and there's real implications. But the question I wanted to ask you, guys, I want a 20-second answer here. Let's hit this quick. Let's do hot takes on this.
What's the stock that you think is going to make money from rising interest rates over the next decade? Toby, you kick us off, and then Rachel.
Toby Bordelon: Look, I'm going to go with Charles Schwab (SCHW 1.14%) here. Charles Schwab, big broker. I think financial companies going to do well in rising interest rates environments. They can make money off of a spread if they're doing it right.
They take deposits, they want that money out. Yes, they have to pay more, but if they're good, they can raise the rates that they're charging more than the rates they pay out and therefore increase that spread.
Hall: Their interest margin.
Bordelon: Yeah. That's one to look at. They are acquiring TD Ameritrade. That acquisition is done. The integration is still happening. If interest rates are going up, that suggests the economy is doing well. The Fed is raising rates to try to tamp down inflation, all that stuff. Signs that salary is going to continue to rise more.
People have more money, they're going to save more of that, maybe. Maybe not America because that's not how we roll. But maybe people will save more. [laughs]
They'll put it in a savings account or a brokerage account. Charles Schwab has both the bank and the brokerage. I think it's one to look at, but I will say this has happened before. I've heard this thesis before. I've been a proponent of this thesis before.
I remember a decade ago the old Motley Fool Pro. I think was investing in TD Ameritrade and maybe Interactive Brokers for this reason, among other things. That never really played out.
Hall: Messed up expectations, I believe is the word. It happens.
Bordelon: Maybe it won't happen, but it's one to look at.
