Friday the Labor Dept. reported a surprise: much higher number of new jobs than anticipated. This report increases the likelihood the FED will start raising as early as December. All interest rates will eventually rise on bonds, mortgages and bank deposit accounts. NOTE: interest rates on bank checking, savings and CD’s will be slower to rise.
Keep in mind, as interest rates rise, the value of bonds (and bond mutual funds) currently held will DECLINE. The longer the maturity of the bond, or bonds held by a bond mutual fund, the bigger the decline in value.
Also, utility stocks (especially electric utilities) may not perform well during periods of higher interest rates – our research of the 1970’s, the last period of a multi-year ever increasing interest rates, indicates electric utilities declined 30% or more.
On the other hand, many experts believe technology stocks, stock brokerage companies, and regional bank stocks will perform very well during interest rate increases. The dividend rate on many regional bank stocks rival those paid by electric utilities. And, regional bank stocks are forecasted to grow their dividend at a faster rate than electric utilities.