While the debate over how high interest rates will go rages on, the FOMC almost certainly won't cut rates anytime soon. The takeaway for investors is that the “new normal” of higher-for-longer, which took effect two or three years ago, is now normal and unlikely to change. For investors, this means refocusing on high-quality, rate-resistant stocks that deliver value.
Rate-resistant stocks share a few qualities that drive positive stock price performance over time, whether the FOMC is hiking or cutting rates, including healthy balance sheets, pricing power, and reliable cash flow. Low- or fixed-rate debt insulates companies from rising borrowing costs, while strong cash positions provide yield on deposits. Pricing power comes from brand strength and market position, which typically entails essential goods and services—dailies and necessities people and businesses can’t live without. This enables the ability to pass through higher costs and maintain margins, which is critical.
