Financial sector-related stocks are set to potentially outperform this year as the Federal Reserve is expected to issue multiple interest rate hikes, something the central bank hasn't done in three years. The Fed has signaled that it will likely start raising rates in mid-March.
The Fed has kept interest rates low for most of the past decade, and near-zero throughout the coronavirus pandemic. The financial sector is one of the most sensitive sectors to chains interest rates, as their profit margins typically expand with rates climb and contract with rates fall. Financial entities like banks, insurance companies and brokerage firms usually benefit from rate hikes.
As the Fed moves to raise rates, banks could benefit from gains in their net interest income--the difference between what banks earn from lending and pay out on deposits--especially as a healthy economy usually leads to more loans.
JPMorgan & Chase
JPM and Citigroup
As for other financial entities, higher interest rates generally leads to growth for insurance companies as improving consumer sentiment towards economic conditions leads to more car purchasing and home sales, resulting in more issued policies. Brokerages also benefit from more investment activity and increased interest income from rising rates.
Bank of America
There are several board financial-sector exchange-traded funds that could benefit in a higher rate environment this year. These include the Financial Select Sector SPDR Fund