Interest rates are one of the most important factors affecting stock market performance. When rates rise, borrowing becomes more expensive, economic growth often slows, and some sectors struggle while others thrive. In the following article, we explore which market sectors perform best (and worst) across different interest-rate environments.
When interest rates rise, the stock market often suffers. But the thing to remember is that not all stocks suffer equally.
Between March 2022 and July 2023, the U.S. Federal Reserve delivered one of the fastest tightening cycles in decades, raising its benchmark interest rate from near 0% to 5.25%-5.50%.
Then, as inflation cooled, the Fed began cutting rates in late 2024. Throughout that period, some sectors struggled—but others thrived.
The thing that many new traders and investors don’t know is that borrowing costs can pressure growth stocks and highly leveraged companies.
This means sectors such as energy, financials, and insurance have historically performed far better than the broader market during periods of elevated rates.
In 2022, for example, the Energy sector gained roughly 59% while the S&P 500 fell about 18%, highlighting how dramatically sector performance can diverge when monetary policy shifts.
Understanding which sectors tend to benefit from higher interest rates and knowing which sectors struggle can help investors move beyond headlines and position their portfolios for changing economic conditions.
Quick Answer: Which Stock Market Sectors Perform Best in High Interest Rate Environments?
The stock market sectors that often perform best in high interest rate environments are financials, energy, materials, insurance, and some defensive value sectors. Financial companies may benefit from wider lending spreads, while energy and materials often perform well when high rates are caused by inflation. On the other hand, high interest rates can also pressure sectors that depend heavily on cheap borrowing, long-term growth assumptions, or dividend-like income, such as technology, real estate, utilities, and consumer discretionary stocks.
Sectors That Perform Best With High Interest Rates
| Sector | Why It Can Benefit From High Interest Rates |
|---|---|
| Financials | Banks may earn higher net interest margins when loan rates rise faster than deposit costs. |
| Insurance | Insurers can earn more investment income on their bond portfolios and cash reserves. |
| Energy | High-rate environments often overlap with inflation, which can support oil, gas, and energy profits. |
| Materials | Commodity producers may benefit when inflation pushes up prices for metals, chemicals, and raw materials. |
| Consumer Staples | Staples companies sell essential goods, which can make earnings more resilient when rates slow the economy. |
Sectors That Struggle With High Interest Rates
| Sector | Why It Can Struggle When Interest Rates Are High |
|---|---|
| Technology | Higher rates reduce the present value of future earnings, which can pressure high-growth stock valuations. |
| Real Estate | REITs and property companies face higher financing costs and more competition from bond yields. |
| Utilities | Utilities often trade like bond substitutes, so higher bond yields can make their dividends less attractive. |
| Consumer Discretionary | Higher borrowing costs can reduce spending on cars, travel, furniture, restaurants, and other non-essential purchases. |
| Highly Leveraged Companies | Companies with heavy debt loads may see profits squeezed as refinancing and interest expenses rise. |
Key Statistics: High Interest Rates and Stock Market Performance
- The Federal Reserve raised interest rates 11 times between March 2022 and July 2023, increasing the federal funds rate from 0.25%-0.50% to 5.25%-5.50%, the highest level in more than 20 years.
- U.S. inflation peaked at 9.1% in June 2022, the highest reading in over 40 years and the primary reason behind the Fed’s aggressive rate hiking campaign.
- During 2022, the S&P 500 fell approximately 18%-19%, while the Nasdaq Composite declined roughly 33% as investors rotated away from growth stocks.
- The Dow Jones Industrial Average fell approximately 8.8% in 2022, outperforming both the S&P 500 and Nasdaq due to its greater exposure to mature, cash-generating companies.
- While the broader market struggled, the Energy Select Sector SPDR ETF (XLE) gained approximately 59% in 2022, making it one of the best-performing sectors during the inflation-driven rate hiking cycle.
- The average 30-year mortgage rate rose from roughly 3% in early 2022 to more than 7% by late 2023, dramatically increasing borrowing costs for homebuyers.
- Credit card interest rates climbed above 20%, reaching some of the highest levels on record as the Fed increased borrowing costs throughout the economy.
- JPMorgan’s net interest income increased from approximately $52 billion in 2021 to more than $89 billion in 2023, highlighting how many banks benefited from wider lending spreads during the hiking cycle.
- In 2026, concerns surrounding the U.S.-Iran conflict and potential disruptions to the Strait of Hormuz put roughly 20% of global oil shipments at risk, contributing to another period of energy sector outperformance.
- During the first quarter of 2026, the Energy Select Sector SPDR ETF (XLE) gained approximately 37% while the S&P 500 fell roughly 4.6%, demonstrating how commodity-linked sectors can outperform during periods of inflation and geopolitical uncertainty.
- The Materials Select Sector SPDR ETF (XLB) gained roughly 13%-18% during parts of 2026, benefiting from infrastructure spending, AI data center construction, and rising demand for industrial commodities.
- Despite elevated interest rates, companies such as Nvidia, Microsoft, Broadcom, and Meta delivered exceptional returns during the AI boom, proving that strong earnings growth can sometimes outweigh interest-rate headwinds.
What Happens When Interest Rates Rise?
Interest rates are one of the most powerful tools central banks use to influence economic activity. When inflation rises too quickly, central banks often increase interest rates to slow borrowing, reduce spending, and cool demand throughout the economy.
A recent example occurred between March 2022 and July 2023, when the U.S. Federal Reserve launched one of the most aggressive tightening cycles in modern history.
During that period, the federal funds rate increased from 0.25%-0.50% to 5.25%-5.50%, representing a cumulative increase of 525 basis points (5.25 percentage points) across 11 rate hikes.
The goal was simple: bring inflation back toward the Fed’s long-term 2% target after U.S. inflation surged above 9% in June 2022, its highest level in more than 40 years.
The impact on financial markets was significant.
In 2022, the S&P 500 fell 19.4%, while growth-focused technology stocks were hit even harder. The Nasdaq Composite declined roughly 33%, marking its worst year since the 2008 financial crisis.
The Dow Jones Industrial Average fell approximately 8.8%, outperforming the broader market thanks to its larger weighting toward mature, value-oriented companies.
Rising interest rates were a major contributor, as traders and investors became less willing to pay premium valuations for future growth.
On a whole other note, higher interest rates also affect consumers directly.
The average 30-year fixed mortgage rate climbed from roughly 3% in early 2022 to more than 7% by late 2023, dramatically increasing monthly payments for homebuyers. Credit card interest rates reached record highs above 20%, while auto loan rates and business borrowing costs also surged.
As financing became more expensive, households and businesses began reducing spending and delaying major purchases. Economic growth slowed as a result.
U.S. GDP contracted at an annualized rate of approximately 1.0% during the first quarter of 2022, while recession fears intensified throughout much of the hiking cycle.
Although the economy ultimately avoided a severe recession and achieved a “soft landing,” growth moderated considerably compared to the post-pandemic recovery period.
For investors, the takeaway is that higher interest rates increase borrowing costs, slow economic activity, compress stock valuations, and often create major differences in sector performance.
Do Financial Stocks Perform Well When Interest Rates Rise?
When interest rates rise, banks can often increase their profitability through a metric known as Net Interest Margin (NIM). NIM measures the difference between what a bank earns on loans and investments versus what it pays depositors for their savings.
During the Federal Reserve’s 2022-2023 hiking cycle, many banks were able to raise interest rates on mortgages, credit cards, business loans, and personal loans faster than they increased rates paid on deposits.
This allowed banks to earn a larger spread on their lending activities, boosting revenue and profits.
For example, JPMorgan Chase’s net interest income increased from approximately $52 billion in 2021 to more than $89 billion in 2023, while several other major U.S. banks also reported expanding net interest margins during portions of the rate-hiking cycle.
Although extremely high rates can eventually slow lending demand, moderate rate increases have historically been a tailwind for many financial institutions.
Key Statistics – How Interest Rates Impact Bank Stocks
| Bank | NIM Before Hikes (2021) | NIM During Hikes (2023) |
|---|---|---|
| JPMorgan Chase | 1.63% | 2.69% |
| Bank of America | 1.69% | 2.15% |
| Wells Fargo | 1.95% | 3.13% |
How Do Interest Rates Impact Energy Stocks?
Unlike technology and real estate stocks, energy companies are often less affected by rising interest rates and can sometimes benefit from the economic conditions that lead to higher rates in the first place.
Central banks typically raise interest rates when inflation becomes too high. And since energy prices are a major component of inflation, periods of elevated inflation often coincide with rising oil and natural gas prices.
This can create a favorable environment for energy producers, as higher commodity prices frequently lead to stronger revenues, wider profit margins, and increased cash flow.
The 2022 inflation surge provides a textbook example.
As inflation reached 9.1%, crude oil prices briefly climbed above $120 per barrel, while many energy companies generated record profits.
During the same year that the Federal Reserve aggressively raised rates, the Energy Select Sector SPDR ETF (XLE) gained approximately 59%, dramatically outperforming both the broader market and the technology sector.
2022 Energy Outperformance
| Sector | 2022 Return |
|---|---|
| Energy (XLE) | +59% |
| S&P 500 | -18% |
| Nasdaq Composite | -33% |
Key Statistics From the 2022 Inflation Surge
| Metric | Peak / Result |
|---|---|
| U.S. Inflation Rate | 9.1% (June 2022) |
| WTI Crude Oil Price | Over $120/barrel |
| Fed Funds Rate Increase | +5.25 percentage points |
| Energy Sector Return | +59% |
More recently, the 2026 U.S.-Iran conflict created significant uncertainty in global energy markets.
Concerns surrounding disruptions to oil shipments through the Strait of Hormuz—which handles roughly 20% of global oil trade—caused oil prices to surge and energy stocks to outperform much of the broader market during the early stages of the conflict.
Analysts described the disruption as one of the most significant energy security challenges in modern history.
While many sectors struggled with rising geopolitical uncertainty, energy companies benefited from higher crude oil prices and concerns about future supply shortages.
During the first quarter of 2026, energy stocks dramatically outperformed the broader market as investors rotated toward companies expected to benefit from elevated oil and natural gas prices
2026 Energy Sector Performance During the U.S.-Iran Conflict
| Metric | Result |
|---|---|
| Energy Sector (XLE) Q1 2026 Return | +37.0% |
| S&P 500 (SPY) Q1 2026 Return | -4.6% |
| Brent Crude Oil Increase After Conflict Escalation | +10% to +13% |
| Oil Price Level Reached | ~$80-$100 per barrel |
| Global Oil Supply at Risk | ~20% |
Why Do Basic Materials Stocks Benefit From High Interest Rates?
Like energy stocks, basic materials companies don’t necessarily benefit from higher interest rates themselves. Instead, they often benefit from the inflationary pressures and commodity demand that frequently accompany rising rate environments.
Think about it this way: Basic materials companies produce many of the raw materials that power the global economy, including copper, steel, aluminum, chemicals, fertilizers, and construction materials.
So, when inflation rises and economic activity remains relatively strong, demand for these commodities often increases, allowing producers to raise prices and improve profit margins.
The 2021-2022 inflation surge provides a good example.
During that period, copper briefly traded above $10,000 per metric ton, aluminum reached record highs above $4,000 per ton, and fertilizer prices more than doubled in some markets.
As commodity prices climbed, many mining and materials companies reported strong revenue growth despite broader market weakness.
Key Commodity Performance During the 2021-2022 Inflation Surge
| Commodity | Peak Price Increase | Primary Driver |
|---|---|---|
| Copper | Above $10,000/ton | Industrial demand and electrification trends |
| Aluminum | Above $4,000/ton | Supply constraints and energy costs |
| Steel | Near record highs | Construction and manufacturing demand |
| Fertilizers | More than doubled | Supply disruptions and higher energy prices |
As you might expect, the 2022-2023 interest-rate environment wasn’t a one-off. The trend has continued into well-into 2026.
As investors rotated away from expensive growth stocks and toward hard assets like gold, the Materials Select Sector SPDR ETF (XLB) became one of the market’s strongest-performing sectors, posting gains of roughly 13% to 18% during parts of 2026, significantly outperforming the broader market.
Analysts have pointed to infrastructure spending, AI-related construction demand, rising commodity prices, and increased demand for natural resources as key drivers behind the sector’s strength.
While materials stocks can still be cyclical and sensitive to economic slowdowns, history shows that they often outperform when inflation is elevated and commodity prices are rising.
Commodity Performance During 2026
| Metric | 2026 Performance |
|---|---|
| Materials Sector (XLB) | +13% to +18% |
| Sector Ranking | Among the market’s top-performing sectors |
| Major Drivers | Infrastructure, AI data centers, construction, commodities |
| Materials Sector Weight in S&P 500 | ~2% |
| Q1 2026 Earnings Growth Forecast | ~17.7% |
Do Insurance Companies Benefit From High or Low Interest Rates?
Insurance companies are one of the most overlooked beneficiaries of rising interest rates. While investors often focus on bank stocks, many insurers can also see a meaningful boost to profits when rates move higher.
The reason is simple: insurance companies collect premiums today but may not pay claims for years.
During that time, they invest billions of dollars in assets such as government bonds, corporate bonds, and short-term fixed-income securities.
When interest rates rise, insurers can often reinvest maturing bonds at higher yields, increasing investment income without necessarily taking on additional risk.
In 2023, for example, many major insurers reported double-digit growth in investment income as bond yields climbed to their highest levels in more than a decade.
Unlike banks, which can face pressure from deposit outflows during rate hikes, insurers often enjoy a more stable funding base and can steadily benefit from higher fixed-income returns.
For long-term investors, insurance companies can offer a unique combination of rising investment income, consistent cash flow, and defensive business models, making them one of the lesser-known winners during high-rate environments.
Investment Income Growth During the Recent Rate Hiking Cycle
| Company | Approx. Invested Assets | Why Higher Rates Help |
|---|---|---|
| Berkshire Hathaway | $300B+ | Higher yields on Treasury bills and fixed-income investments increase earnings. |
| Chubb | $100B+ | Reinvests bond portfolio at higher yields, boosting investment income. |
| Travelers | $80B+ | Benefits from higher returns on fixed-income reserves and insurance float. |
Why Technology Stocks Often Struggle When Interest Rates Rise
Technology stocks are often among the biggest losers when interest rates move higher.
That’s because many growth companies like Tesla and SpaceX generate most of their expected profits years into the future rather than today.
Investors value stocks based on the cash they are expected to generate over time. Therefore, when interest rates rise, those future profits become less valuable in today’s dollars through a process known as discounted cash flow (DCF) analysis.
To help explain discounted cash flow analysis, let’s consider two companies:
- Company A earns $100 today
- Company B is expected to earn $100 ten years from now
If interest rates increase, the value of Company A changes very little because its profits are already being generated. Company B, however, becomes significantly less valuable because investors must discount those future earnings at a higher rate.
This helps explain why the technology sector was hit so hard during the Fed’s 2022-2023 rate hiking cycle.
In 2022, the Nasdaq Composite fell approximately 33%, compared to only an 18% decline for the S&P 500, as investors rotated away from long-duration growth stocks and toward sectors with more immediate cash flows.
Present Value of $100 Received in 10 Years
| Discount Rate | Present Value of $100 in 10 Years |
|---|---|
| 1% | $90.53 |
| 5% | $61.39 |
| 10% | $38.55 |
In other words, a future $100 profit becomes worth nearly 57% less when the discount rate rises from 1% to 10%.
That’s one of the main reasons technology stocks and other interest-rate-sensitive sectors often face valuation pressure during high-interest-rate environments.
Important Exception: High Rates Don’t Always Mean Tech Falls
While technology stocks often struggle when interest rates rise, interest rates are only one piece of the puzzle.
Strong earnings growth can sometimes outweigh the negative impact of higher borrowing costs and higher discount rates.
The best recent example is the artificial intelligence boom.
Despite interest rates remaining near multi-decade highs throughout much of 2024 and 2025, many technology stocks delivered exceptional returns as investors focused on explosive revenue growth, AI spending, and data center demand.
Companies such as Nvidia, Broadcom, Microsoft, and Meta generated strong earnings growth that more than offset the headwinds from elevated interest rates.
The lesson here is that interest rates influence stock valuations, but earnings growth ultimately drives long-term returns. Basically, exceptional businesses can still outperform when profits and revenue grow fast enough.
| Company | Why It Outperformed Despite High Rates |
|---|---|
| Nvidia | Explosive AI demand and triple-digit revenue growth. |
| Broadcom | AI networking and semiconductor demand accelerated earnings growth. |
| Microsoft | Cloud computing and AI integration boosted revenue and profits. |
| Meta Platforms | Advertising recovery and AI investments improved profitability. |
Conclusion – Which Sectors Are Best Positioned for High Interest Rates?
While rising interest rates can create challenges for the broader market, not all sectors are affected equally.
Financials often benefit from wider lending spreads, while energy, materials, and insurance companies can profit from the inflationary conditions and higher yields that frequently accompany rate hikes.
In contrast, technology stocks, real estate companies, and utilities often face greater pressure because their valuations and business models are more sensitive to higher borrowing costs and discount rates.
However, interest rates are only one piece of the puzzle. As the AI-driven rally of 2024-2026 demonstrated, strong earnings growth can sometimes outweigh interest rate headwinds.
Ultimately, understanding how different sectors respond to changing rate environments can help investors make better portfolio decisions and identify opportunities others may overlook.
If you want to go deeper:
- Explore the Trading Statistics Hub to understand how different sectors behave across market cycles
- Study real setups inside the Trade Reviews section
- Learn the framework behind high-probability setups in the Post-Earnings Momentum Strategy
This is how you turn raw market data into repeatable trading edge.
More Trading Statistics…
Frequently Asked Questions
Which stock market sectors perform best when interest rates rise?
Historically, financials, energy, materials, and insurance companies have often performed well during rising-rate environments. Banks can benefit from higher lending spreads, while energy and materials companies may profit from inflation-driven increases in commodity prices.
Why do technology stocks often struggle when interest rates rise?
Technology stocks are often valued based on earnings expected many years in the future. Higher interest rates reduce the present value of those future cash flows, which can put pressure on valuations and stock prices.
Do all stocks fall when interest rates increase?
No. While higher rates can create headwinds for the broader market, some sectors historically outperform. The 2022-2023 rate hiking cycle saw the Energy sector gain approximately 59% while the Nasdaq fell roughly 33%.
Why do banks benefit from higher interest rates?
Banks often earn more when interest rates rise because they can charge higher rates on loans while increasing deposit rates more slowly. This can expand net interest margins and improve profitability.
Are energy stocks good investments during periods of high interest rates?
Energy stocks can perform well when rising rates are driven by inflation. Higher oil and gas prices often increase revenues and profits for energy producers, helping the sector outperform during certain rate-hiking cycles.
How do higher interest rates affect real estate stocks?
Higher interest rates increase borrowing costs for homeowners, property developers, and real estate investment trusts (REITs). Rising mortgage rates can reduce housing demand, while higher financing costs can pressure property values and profits.
Why can insurance companies benefit from rising interest rates?
Insurance companies typically invest large portions of their assets in bonds and fixed-income securities. As rates rise, insurers can reinvest maturing assets at higher yields, increasing investment income and earnings.
What happened to stocks during the 2022-2023 Federal Reserve hiking cycle?
Between March 2022 and July 2023, the Federal Reserve raised interest rates from near 0% to 5.25%-5.50%. During 2022, the S&P 500 fell about 18%, the Nasdaq declined roughly 33%, while the Energy sector gained approximately 59%.
Can technology stocks still perform well when interest rates are high?
Yes. Strong earnings growth can sometimes outweigh interest rate headwinds. Companies such as Nvidia, Microsoft, Broadcom, and Meta delivered strong returns during the AI-driven rally despite elevated interest rates.
Should investors change sectors when interest rates rise?
Many investors use sector rotation strategies to adapt to changing economic conditions. While no strategy works all the time, understanding which sectors have historically benefited or struggled during rising-rate environments can help investors make more informed portfolio decisions.
References
Bank of America Corporation. (2022-2024). Annual reports and earnings presentations. Bank of America Investor Relations. https://investor.bankofamerica.com
Berkshire Hathaway Inc. (2022-2025). Annual reports. Berkshire Hathaway Investor Relations. https://www.berkshirehathaway.com
Board of Governors of the Federal Reserve System. (2025). Federal funds effective rate (FEDFUNDS). Federal Reserve Bank of St. Louis FRED Database. https://fred.stlouisfed.org/series/FEDFUNDS
Board of Governors of the Federal Reserve System. (2025). Historical federal funds target rate decisions. Federal Reserve. https://www.federalreserve.gov
Chubb Limited. (2022-2025). Annual reports and investor presentations. Chubb Investor Relations. https://investors.chubb.com
Federal Reserve Bank of St. Louis. (2025). Consumer Price Index for All Urban Consumers (CPIAUCSL). FRED Economic Data. https://fred.stlouisfed.org/series/CPIAUCSL
Federal Reserve Bank of St. Louis. (2025). 30-Year Fixed Rate Mortgage Average in the United States (MORTGAGE30US). FRED Economic Data. https://fred.stlouisfed.org/series/MORTGAGE30US
Federal Reserve Bank of St. Louis. (2025). 10-Year Treasury Constant Maturity Rate (DGS10). FRED Economic Data. https://fred.stlouisfed.org/series/DGS10
JPMorgan Chase & Co. (2022-2025). Annual reports and earnings releases. JPMorgan Investor Relations. https://www.jpmorganchase.com/ir
Macrotrends LLC. (2025). S&P 500 historical annual returns. https://www.macrotrends.net/2526/sp-500-historical-annual-returns
Macrotrends LLC. (2025). NASDAQ Composite historical annual returns. https://www.macrotrends.net
Microsoft Corporation. (2025). Annual reports and SEC filings. Microsoft Investor Relations. https://www.microsoft.com/investor
Nucor Corporation. (2022-2025). Annual reports and investor presentations. Nucor Investor Relations. https://investor.nucor.com
Nutrien Ltd. (2022-2025). Annual reports and investor presentations. Nutrien Investor Relations. https://www.nutrien.com/investors
S&P Dow Jones Indices. (2025). Dow Jones Industrial Average historical performance data. https://www.spglobal.com/spdji
SPDR Americas Research. (2025). Energy Select Sector SPDR Fund (XLE). State Street Global Advisors. https://www.ssga.com
SPDR Americas Research. (2025). Materials Select Sector SPDR Fund (XLB). State Street Global Advisors. https://www.ssga.com
Travelers Companies, Inc. (2022-2025). Annual reports and investor presentations. Travelers Investor Relations. https://investor.travelers.com
U.S. Bureau of Economic Analysis. (2025). Gross Domestic Product (GDP). https://www.bea.gov
U.S. Energy Information Administration. (2025). Petroleum and other liquids: Spot prices. https://www.eia.gov
U.S. Energy Information Administration. (2025). Short-term energy outlook. https://www.eia.gov/outlooks/steo
Wells Fargo & Company. (2022-2025). Annual reports and earnings presentations. Wells Fargo Investor Relations. https://www.wellsfargo.com/about/investor-relations
Yahoo Finance. (2025). Materials Select Sector SPDR Fund (XLB) historical performance data. https://finance.yahoo.com
Yahoo Finance. (2025). Energy Select Sector SPDR Fund (XLE) historical performance data. https://finance.yahoo.com
Leave a Reply