S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
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66,000% upside on tiny biotech? (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Bears covered shorts on this ETF, 3 stocks to pop on the shift
S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
66,000% upside on tiny biotech? (Ad)
Applied Materials stock is Ray Dalio's favorite in this new cycle
Palo Alto Networks aims at cyber security leadership
66,000% upside on tiny biotech? (Ad)
Spotify sounding better to analysts as company tunes into profits
3 Reasons the Capital One-Discover merger is a big deal
66,000% upside on tiny biotech? (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Bears covered shorts on this ETF, 3 stocks to pop on the shift
S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
66,000% upside on tiny biotech? (Ad)
Applied Materials stock is Ray Dalio's favorite in this new cycle
Palo Alto Networks aims at cyber security leadership
66,000% upside on tiny biotech? (Ad)
Spotify sounding better to analysts as company tunes into profits
3 Reasons the Capital One-Discover merger is a big deal
66,000% upside on tiny biotech? (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Bears covered shorts on this ETF, 3 stocks to pop on the shift
S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
66,000% upside on tiny biotech? (Ad)
Applied Materials stock is Ray Dalio's favorite in this new cycle
Palo Alto Networks aims at cyber security leadership
66,000% upside on tiny biotech? (Ad)
Spotify sounding better to analysts as company tunes into profits
3 Reasons the Capital One-Discover merger is a big deal
66,000% upside on tiny biotech? (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Bears covered shorts on this ETF, 3 stocks to pop on the shift

Can financial, healthcare, energy stocks rise as rates stay high?

Stock sectors

Key Points

  • Financials, healthcare, utilities and energy often, but not always, perform well when interest rates remain high.
  • Demand for utilities and healthcare remains strong even in a high-rate environment, although the utilities sector has challenges related to capital investment and cost of borrowing.
  • Energy is facing obstacles relating to geopolitical concerns and excess capacity. 
  • 5 stocks we like better than Alphabet

Large bank stocks such as Berkshire Hathaway Inc. NYSE: BRK.B, JPMorgan Chase & Co. NYSE: JPM, and Citigroup Inc. NYSE: C are up in the past month as it’s become clear that interest rates will remain high for the foreseeable future. 

The Financial Select Sector SPDR Fund NYSEARCA: XLF is up 2.86% in the past month, as banks are among industries benefiting from higher rates. 

Healthcare and utilities also tend to outperform during cycles of higher rates. 

Energy does, too, historically, but in 2024, the sector has a few things working against it. 

Here’s a look at some of the dynamics driving sector performance in an era of “higher for longer.” 

Healthcare stocks a prescription for profit?

Healthcare stocks have some defensive elements, in that it’s somewhat resistant to inflation. Demand remains steady for medical services and products regardless of economic conditions. Factors like an aging population, advances in medical technologies and essential healthcare needs contribute to sustained demand. 

It helps that many procedures and treatments are covered by health insurance; with less to pay out of pocket, consumers will seek treatment regardless of what the Federal Reserve is saying about interest rates.

Leading stocks in the Health Care Select Sector SPDR Fund NYSEARCA: XLV in the past month are Catalent Inc. NYSE: CTLT, Edwards Lifesciences Corp. NYSE: EW and Intuitive Surgical Inc. NASDAQ: ISRG


One factor that may work in healthcare’s favor this year: If borrowing costs remain steady, the industry may see more consolidation through merger and acquisition deals, which frequently sends stock prices higher. 

Will utilities power higher in 2024?

Growth investors typically find utility stocks to be rather dull, as there’s not the fast growth you find with technology stocks or communications-sector stocks like Meta Platforms Inc. NASDAQ: META or Alphabet Inc. NASDAQ: GOOGL

Utilities are highly sensitive to interest rates, although demand remains steady regardless of where rates stand. These are highly capital-intensive businesses, particularly these days, as pressure is on to update an aging power grid amid increased electricity usage. That means higher rates for borrowing can put a dent in profitability.

On the other hand, businesses keep the electricity and gas running, as do residential customers, even when rates are high. That means income is steady, although weather factors, such as a warmer-than-usual winter, can affect revenue growth.

Utilities pay higher dividends than other sectors, and can even be considered bond proxies. The Utilities Select Sector SPDR Fund NYSEARCA: XLU has a dividend yield of 3.6%, higher than the iShares Core U.S. Aggregate Bond ETF NYSEARCA: AGG.

The utilities sector hasn’t performed well thus far in 2024 but Wall Street expects earnings growth this year and next, although regulators will carefully monitor proposed rate increases, which are necessary as part of the greater need for capital investment. 

Energy stocks running on fumes in 2024?

Energy stocks’ fates are largely determined by oil prices, which have been trending lower since late September. 

Energy stocks can perform well in high-interest-rate environments due to their correlation with economic growth. As rates rise, it can signify a strong economy, increasing energy demand. While the economy remains robust, other factors are affecting performance of stocks in the Energy Select Sector SPDR Fund NYSEARCA: XLE.

In 2024, excess capacity is putting downward pressure on oil prices, while geopolitical concerns continue to rear their head. 

Investors typically don’t gravitate toward energy stocks when capacity is high. That makes sense, given supply-and-demand dynamics. Why pay up for a product that’s sitting around in storage, unused?

“History is unkind to oil equities when there is spare capacity in the system,” Citi analyst Alastair Syme wrote in a recent note.

On a one-month basis, top performers in the energy sector are Marathon Petroleum Corp. NYSE: MPC, Phillips 66 NYSE: PSX and Valero Energy Corp. NYSE: VLO.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Alphabet (GOOGL)
2.5762 of 5 stars
$142.55+1.0%N/A24.58Moderate Buy$153.65
Berkshire Hathaway (BRK.B)
0.3438 of 5 stars
$409.25+0.5%N/A11.64Hold$414.00
Catalent (CTLT)
2.407 of 5 stars
$58.24+0.4%N/A-8.56Hold$52.46
Edwards Lifesciences (EW)
4.7031 of 5 stars
$86.65-0.3%N/A37.67Hold$87.38
Energy Select Sector SPDR Fund (XLE)N/A$86.37+1.9%3.73%6.92N/AN/A
Financial Select Sector SPDR Fund (XLF)N/A$39.64+0.3%1.77%12.16N/AN/A
Health Care Select Sector SPDR Fund (XLV)N/A$145.43+0.2%1.37%15.12N/AN/A
Intuitive Surgical (ISRG)
4.6848 of 5 stars
$380.23+0.7%N/A75.59Moderate Buy$371.60
iShares Core U.S. Aggregate Bond ETF (AGG)N/A$96.89-0.3%3.26%N/AN/AN/A
Marathon Petroleum (MPC)
3.7588 of 5 stars
$166.05+1.1%1.99%7.06Moderate Buy$163.00
Phillips 66 (PSX)
4.4468 of 5 stars
$143.55+1.7%2.93%9.28Moderate Buy$138.21
Utilities Select Sector SPDR Fund (XLU)N/A$61.99+1.3%3.32%20.41N/AN/A
Valero Energy (VLO)
3.5393 of 5 stars
$137.17+1.6%3.12%5.55Moderate Buy$153.62
Meta Platforms (META)
3.9836 of 5 stars
$468.03-0.7%0.43%31.41Moderate Buy$494.53
Citigroup (C)
4.8575 of 5 stars
$55.34-0.1%3.83%13.87Moderate Buy$57.03
Compare These Stocks  Add These Stocks to My Watchlist 

Kate Stalter

About Kate Stalter

  • stalterkate@gmail.com

Contributing Author

Retirement, Asset Allocation, and Tax Strategies

Experience

Kate Stalter has been a contributing writer for MarketBeat since 2021.

Additional Experience

Series 65-licensed investment advisor, financial advisor, Blue Marlin Advisors; investment columnist for Forbes, U.S. News & World Report

Areas of Expertise

Asset allocation, technical and fundamental analysis, retirement strategies, income generation, risk management, sector and industry analysis

Education

Bachelor of Arts, Saint Mary’s College, Notre Dame, Indiana; Master of Business Adminstration, Kellogg School of Management at Northwestern University

Past Experience

Founder, financial advisor for Better Money Decisions; editor, stock trading instructor for Investor’s Business Daily; columnist, podcast host, video host for MoneyShow.com; contributor for Morningstar magazine


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