Which section of the market has the most to gain in 2022? With interest rate hikes on the horizon this year, investors may be looking to the financial sector for investing inspiration.
In this clip from "The Rank" on Motley Fool Live, recorded on Jan. 31, Fool.com contributors Jason Hall, Dan Caplinger, and Matthew Frankel, CFP®, discuss what the sector has going for it, what to be aware of, and one often-overlooked subsector that could surprise investors.
Matt Frankel: This is the financial sector. I think there are some great values in the financial sector, even on, just traditional valuation basis on price to book, price to earnings, things like that. But also because They have the most to gain out of any of these sectors in an inflationary environment. I think there's a lot of underappreciated potential for banks to increase their net interest margins. As inflation rises, you will see a lot of more volatility which leads to trading profits for banks like Goldman Sachs, Bank of America, which happen to be my two favorites in the sector at the moment. There's just a lot of that banks can benefit from rising inflation, rising consumer activity, which consumer confidence is growing. I mentioned that consumer discretionary is my least favorite sector right now, which might sound contradictory. But consumers are out there spending money right now. Loan demand is not really falling off yet. I think as the Fed raises rates, banks have a lot to gain this year. Guys.
Dan Caplinger: I guess I'll agree with all of that with a couple of caveats. One is that I think the sector pulled forward a lot of stock gains in 2021 anticipating that this would be the case in 2022. I think this is maybe a buy the rumor, sell the news kind of thing. The other thing I'm a little bit concerned about is that with the Fed being aggressive about the short-term interest rate hikes. It may be we get a situation where even as interest rates rise, yield curves stay about in their current shape or even flatten. If that happens, then you may not see the net interest income expansion that everybody had expected when interest rates rise. If that happens, then I think that you may see some reversal in the stock gains we saw last year. But in general, I think the tailwinds outweigh those risks and they're good plays I own JPMorgan, JPM. It's been a good play.
Jason Hall: Sometimes, the average investor forgets that insurance companies are financials, there is not a group, there is not a cohort, has been begging for higher interest rates more than insurance companies. I think there are a lot of deep values to be found in the insurance industry right now. Those companies that are float, They're going to benefit from rising rates.
