7 Stocks to Buy When Interest Rates Rise in 2025

When interest rates rise, most beginners just see red on their screens and panic. Rate hikes change how money flows through the economy, how banks lend, how companies fund growth, and how investors price stocks and other securities like bonds and treasury bills. If you do not understand this, you end up blaming “the market” instead of adjusting your investment strategy and risk management.

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You do not need to predict every interest rate change from the Federal Reserve or other central bank. You need to know which sectors can potentially benefit from higher rates, which businesses can pass on higher costs, and which stocks have strong balance sheets, solid earnings, and high-cash-flow profiles. I focus on simple, repeatable rules that help traders and investors survive volatility, protect capital, and still look for opportunities in a tougher rate environment.

Here are seven stocks many investors watch when interest rates rise. This is not individual investment advice, but a starting point to study, track, and compare performance against the S&P 500, sector ETFs, and your own portfolio rules.

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Bank of America (NYSE: BAC)

Bank of America is one of the clearest examples of a rate-sensitive stock. When interest rates and mortgage rates rise, large banks can often improve their net interest margin, which is the spread between what they earn on loans and what they pay on deposits. That spread matters more than headline rate hikes. If the economy holds up and credit risk stays manageable, higher rates can support earnings, revenues, and profits for large financials like BAC. The stock price will still move with overall market volatility and banking headlines, so this is never a sure thing.

In my trading and teaching, I always stress that even “boring” banking stocks still carry risk, especially during fast interest rate changes and liquidity shocks. If you decide to buy or hold BAC, study its capital position, loan book quality, and exposure to housing and business loans. Look at results across several quarters, not one chart. Treat it as one part of a balanced, risk-managed portfolio, not a one-stock bet on the entire rate cycle.

ExxonMobil (NYSE: XOM)

ExxonMobil sits at the intersection of energy, inflation, and global growth. Rising interest rates usually signal that the central bank is fighting inflation or trying to cool an overheated economy. Energy stocks like XOM can sometimes benefit if commodity prices stay firm while rates increase, because strong oil and gas prices support high-cash-flow, attractive dividends, and strong earnings. Investors often treat Exxon as a reliable, dividend-paying asset when they want exposure to inflation-sensitive sectors instead of just bonds and defensive utilities.

From years of watching sector rotations, I have seen traders use energy stocks as a strategic hedge when inflation and rate hikes pressure stock valuations in growth-oriented names. If you choose to analyze Exxon, focus on its cash flow, long-term debt, and capital-intensive project pipeline. Study how management allocates capital between dividends, buybacks, and new investments. Remember that energy remains cyclical and highly sensitive to global demand, supply shocks, and political risk, even in a high-rate environment.

Caterpillar (NYSE: CAT)

Caterpillar is a classic cyclical, capital-intensive company tied to construction, infrastructure, and mining. When interest rates rise, you need to ask one key question. Is the economy still strong enough that businesses and governments keep spending on equipment, or do higher borrowing costs crush demand for big-ticket projects. If growth holds up, CAT can benefit from infrastructure spending, commodity trends, and pricing power on heavy machinery, which can support revenues, earnings, and long-term stock performance.

In my teaching, I remind traders that cyclical stocks like Caterpillar can move ahead of the economy because the stock market prices in expectations. You often see stock prices shift on data, forward guidance, and rate expectations before actual results change. If you want to evaluate CAT, look at order backlogs, global sales, and how management talks about future demand in conference calls. Watch how the stock behaves around economic data, rate cuts talk, and sector ETFs for industrials, not just daily headlines.

Procter & Gamble (NYSE: PG)

Procter & Gamble represents the opposite of a high-growth, rate-sensitive stock. It sits in the consumer staples sector, which many investors treat as defensive during periods of volatility, interest rate hikes, and economic uncertainty. PG sells products people use daily, which supports stable cash flow, steady dividends, and relatively lower earnings volatility. That stability can attract capital when risk appetite drops and growth stocks suffer from higher discount rates in valuation models.

From two decades of watching how traders react to fear, I often see money rotate into financially-strong, dividend-paying, defensive companies like PG when the market worries about aggressive interest rate changes. If you analyze Procter & Gamble, look at its pricing power, input cost pressures, and dividend history. Track whether it can raise prices without losing volumes. This kind of stock will not usually spike like a hot penny stock, but it can help stabilize a portfolio and smooth returns during higher-rate periods.

Microsoft (NASDAQ: MSFT)

Microsoft is a growth-oriented technology leader, yet it often trades more like a resilient, high-cash-flow giant than a fragile growth stock. Higher interest rates can pressure stock valuations for tech, because higher discount rates reduce the present value of future earnings. But a company with strong profits, large cash reserves, and steady demand for cloud and software services can still perform well compared to weaker growth stocks. MSFT benefits from recurring revenues, strong margins, and diversified business lines that span business software, cloud, and gaming.

In my training programs, I always highlight the difference between speculative growth and financially-strong growth. Microsoft falls in the second group, which tends to handle rate hikes better than companies that depend on cheap credit and hype. If you choose to study MSFT, pay attention to free cash flow, balance sheet strength, and guidance on enterprise demand. Compare its performance against the Nasdaq and tech ETFs during rate scares and central bank announcements to see how it reacts to macro risk.

Goldman Sachs Group Inc. (NYSE: GS)

Goldman Sachs is not just a regular bank that takes deposits and makes standard loans. It sits at the center of investment banking, trading, and asset management. Rising interest rates and higher volatility can create more trading and hedging activity, more demand for advisory services, and new opportunities across securities and derivatives. On the other hand, aggressive rate hikes can also slow deal activity, IPOs, and corporate borrowing, which affects fees and results. GS is tied closely to the health of the stock market, bond market, and global capital flows.

Through years of trading around earnings season, I have seen how sensitive investment banks are to cycles in deals, stock issuance, and credit markets. If you evaluate GS, study segments separately. Look at investment banking revenues, trading performance, and asset management fees. Check capital ratios, liquidity, and exposure to credit risk. Watch how Goldman trades relative to other financials, the S&P 500, and financial sector ETFs during rate shocks and economic headlines.

ServiceNow Inc. (NYSE: NOW)

ServiceNow is a growth-oriented software company that sells workflow and automation tools on a subscription model. Higher interest rates typically hurt growth stocks because they raise discount rates and tighten liquidity. But not all growth names are equal. Companies like NOW with high retention, sticky enterprise clients, and recurring revenues can still grow earnings and revenues even when the cost of capital rises. The key is whether the business can fund growth from internal cash flow rather than constant new equity or debt.

Across thousands of charts I have studied and taught from, strong growth stocks in tougher rate environments share common traits. They are low-debt, high-cash-flow, and focused on solving real business problems, not chasing hype. If you analyze ServiceNow, track billings growth, renewal rates, and long-term contracts. Watch how the stock reacts around central bank meetings and inflation data. Compare its valuation and performance to other software names and tech-focused ETFs to see whether investors treat it as higher quality or just another expensive growth stock.

Why Do Some Stocks Perform Better When Interest Rates Rise?

Interest rate hikes change the math behind stock valuations. When the federal funds rate and long-term treasury yields increase, the discount rate used in valuation models rises. Future cash flows are worth less in present terms. That tends to hurt long-duration assets like speculative growth stocks with profits far out in the future. At the same time, higher yields on safer securities like bonds and money market funds compete with equities for investor capital. Some stocks lose their appeal when investors can earn better risk-adjusted returns in fixed income.

But not every company suffers. Financials can benefit from higher net interest margins. Some energy and commodity producers may gain from inflation-sensitive pricing. Defensive, dividend-paying, stable businesses can attract investors looking to reduce risk without leaving the stock market completely. Over many rate cycles I have watched, the key factor is not just the rate change itself, but the state of the economy, earnings trends, and whether the market expected the hikes. Surprises usually create the biggest volatility.

How to Choose a Stock During a Rate-Hiking Cycle

When interest rates rise, you cannot just buy random stocks and hope the market bails you out. You need a clear, risk-managed process for selecting individual securities. Start by focusing on financially-strong, low-debt companies with high-cash-flow and flexible cost structures. If higher rates trigger a slowdown, these businesses have more room to adjust, protect margins, and keep paying dividends. Study earnings reports, cash flow statements, and balance sheets instead of only staring at the chart.

From years of teaching new traders, I always push them to write rules for stock selection during rate hikes. Decide which sectors you want exposure to, how much of your portfolio you will allocate to rate-sensitive names, and how you will manage position size. Look at credit risk, liquidity, and volatility. Avoid chasing hot stories that depend on cheap financing. Track how your picks perform relative to the S&P 500, sector ETFs, and bonds, then adjust and reallocate if the results do not match your plan.

What Sectors Profit from Rising Interest Rates?

No sector wins every time interest rates increase, but some often have a better setup. Financials like banks, certain insurers, and discount brokers can benefit from higher rates if the yield curve and credit conditions cooperate. They may earn more on loans, trading, and customer cash balances. In a healthy economy, these businesses can grow revenues and profits despite higher borrowing costs. Certain pricing-power-focused companies in energy or industrials may also hold up if they can pass higher costs to customers.

Over multiple cycles I have watched, investors often rotate from expensive growth stocks into more rate-sensitive, income-generating sectors when rate hikes accelerate. You might see more interest in dividend-paying utilities, although those can be pressured when treasury yields spike. Real estate and housing can struggle if mortgage rates jump too fast, yet some real estate investment trusts still manage solid performance if they have strong balance sheets and long leases. Always look at sector-specific factors and not just the headline rate move when you pick where to allocate capital.

Real Estate vs. Energy Stocks In High-Rate Environments

Real estate reacts directly to interest rate changes because higher mortgage rates and financing costs hit buyers, developers, and highly leveraged property owners. When rates rise quickly, housing activity can slow, refinancing dries up, and many real estate securities feel pressure. Some REITs carry heavy debt loads, so rate hikes can cut into cash flow and reduce funds available for dividends. That is why I tell students to always study debt maturity schedules and rate exposure in real estate investments.

Energy stocks face a different set of factors. Their performance in high-rate environments often depends more on global demand, supply constraints, and inflation trends than on financing costs alone. If oil and gas prices rise with inflation, strong, low-leverage producers can see higher earnings and free cash flow, which can support dividends and buybacks. Over past cycles, I have watched traders use energy as an inflation and rate hedge while reducing exposure to rate-sensitive real estate. The better choice depends on your risk tolerance, time frame, and ability to handle volatility.

Key Takeaways

When interest rates rise, many beginners treat it as random pain, but there is a clear logic behind the market reaction. Higher rates affect stock valuations, borrowing costs, and competition from bonds and short-term yield products. Some sectors like financials and certain energy names can benefit from rate changes, while others like speculative growth stocks and leveraged real estate can suffer. You need to think like a risk manager first, trader second.

From decades of trading and teaching, I have seen the same pattern repeat. Traders who respect risk, study interest rate trends, and understand sector-specific factors are more likely to survive volatile periods. Those who chase tips and ignore the impact of rate hikes on earnings, liquidity, and credit risk usually learn the hard way. Your job is not to predict every central bank move, but to build a balanced, rate-aware portfolio that you can manage through different stages of the economy.

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Frequently Asked Questions

Most traders hear about interest rate hikes on the news but never learn how to connect them to actual stock prices and portfolio decisions. That confusion shows up in the questions I get from students every time the Federal Reserve hints at a policy shift. They want to know which sectors to buy, whether to dump growth stocks, and how to manage risk when volatility spikes around central bank meetings.

This FAQ section groups the common questions so you can build a clearer framework for your own investment strategy. Use it as a checklist when you evaluate individual stocks, ETFs, or sectors during rate changes. None of this is personal investment advice, but it reflects lessons I have learned from watching traders succeed and fail across multiple rate cycles. Combine these answers with your own research, risk tolerance, and clear rules for when to buy, hold, or sell.

What are Interest Rate-Sensitive Stocks?

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Interest rate-sensitive stocks are equities whose performance is strongly influenced by changes in interest rates. Banks, insurers, real estate investment trusts, utilities, and many growth stocks fall into this group for different reasons. For example, banks react to net interest margins, real estate reacts to mortgage rates and credit, and utilities react to how their dividends compare to treasury yields. When the central bank changes policy, these sectors often move first and hardest, both on hikes and rate cuts.

In my teaching, I push students to build simple watchlists of rate-sensitive sectors and track how they move around each policy announcement and key economic data release. The goal is to learn how interest rate changes affect different businesses, earnings, and valuations, not to guess the exact size of the next hike. When you can recognize which stocks are likely to respond to rate news, you can better manage risk, adjust position size, and avoid getting blindsided by sudden volatility.

Are Rising Interest Rates Bad for Growth Stocks?

Rising interest rates are usually a headwind for growth stocks, but the impact is not the same for every company. In valuation models, higher rates increase the discount rate used for future earnings. That hits long-duration, growth-oriented names that depend on cash flows far in the future. It can cause a decrease in stock valuations even if revenues keep growing. When safer assets like bonds and treasury bills offer higher yields, investors may also rotate out of high-risk growth names.

Over many cycles I have watched, strong, low-debt, high-cash-flow growth companies handle rate hikes far better than speculative, cash-burning businesses. When I teach students about growth stock risk, I tell them to focus on profits, balance sheets, and the path to sustainable earnings, not just top-line growth. If you decide to hold or buy growth stocks in a rate hiking cycle, you need tighter risk management, clear stop levels, and a realistic view of possible volatility and drawdowns.

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Should I Rotate My Portfolio During Interest Rate Hikes?

Portfolio rotation during interest rate hikes can make sense, but it should not be a blind reaction to headlines. You need a plan. When rates increase, ask yourself which assets in your portfolio are most sensitive to higher borrowing costs, credit stress, or changes in discount rates. That might include leveraged real estate, speculative growth stocks, or companies that rely heavily on cheap debt. You may choose to reduce exposure there and increase allocation to more resilient, dividend-paying, or financially strong names.

In my experience working with students, the traders who handle rate cycles best think in terms of measured adjustments, not full panic shifts. They might gradually reallocate toward sectors like selective financials, quality industrials, or stable cash-flow stocks, while also considering short-term yield opportunities in bonds and treasury products. Track your changes in a simple spreadsheet or chart so you can see how each move affects risk and performance. Portfolio rotation should be strategic, risk-managed, and aligned with your time frame, not an emotional reaction.

What Causes Interest Rates to Go Up?

Interest rates usually rise when central banks see inflation running above target, the economy growing too fast, or financial conditions being too loose. To cool things down, the Federal Reserve can increase its policy rate, which influences short-term borrowing costs, mortgage rates, and yields across the bond market. Market-based factors can also push long-term rates higher, such as increased treasury supply, expectations of higher inflation, or stronger growth forecasts. These changes affect the cost of capital for companies and consumers.

When I explain this to new traders, I keep it simple. Rate hikes are a tool policymakers use to balance inflation, growth, and financial stability. Higher rates affect loans, credit risk, housing, business investment, and ultimately stock prices. You do not need to become an economist, but you must respect how these factors influence sectors differently. If you track inflation data, employment reports, and central bank statements, you will not be surprised when the market starts pricing in higher rates and shifting capital among different assets.

Should I Avoid Utility Stocks When Rates are Rising?

Utility stocks often struggle when interest rates rise because investors compare their dividends to risk-free yields on bonds and treasury bills. When those yields increase, utilities can look less attractive, especially if they carry high debt loads or face regulatory pressure that limits pricing power. Higher financing costs can also squeeze profits for capital-intensive utility companies that constantly invest in infrastructure. That is why you often see utilities underperform during aggressive rate hikes.

However, I do not teach students to automatically avoid entire sectors. Instead, I push them to evaluate individual companies, balance sheets, and risk. Some utilities have relatively low leverage, stable cash flow, and reliable dividends that still appeal to income-focused investors, even when rates are higher. If you choose to hold utilities in a rising-rate environment, analyze debt levels, interest coverage ratios, and regulatory conditions. Compare their yield and risk to bond ETFs and other income securities, then size positions accordingly within a diversified, rate-aware portfolio.