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Which sectors perform best during rising interest rates?

AlphaOS investment intelligence · Research and education only — not investment advice · Updated Jul 5, 2026

Sectors that typically perform best during periods of rising interest rates include financials, energy, and certain industrials, as these sectors often benefit from increased lending profitability, higher commodity prices, and robust economic activity that frequently accompanies rate hikes.

Key Takeaways

  • Financials, particularly banks, benefit from rising interest rates as their net interest margins (NIM) expand, allowing them to earn more on loans than they pay on deposits.
  • Energy companies often thrive during periods of rising rates, which are frequently correlated with economic growth and increased demand for commodities, leading to higher oil and gas prices.
  • Industrials, especially those involved in infrastructure and capital goods, can perform well as economic expansion and increased business investment drive demand for their products and services.
  • Insurance companies can see improved investment income from their bond portfolios as new investments are made at higher yields.
  • Companies with strong pricing power and low debt levels are better positioned to pass on increased costs and manage higher borrowing expenses.
  • Utilities, consumer staples, and real estate investment trusts (REITs) tend to underperform as their dividend yields become less attractive compared to rising bond yields, and their debt servicing costs increase.
  • Technology stocks, particularly those with high growth expectations and significant future cash flows, can face headwinds as higher discount rates reduce the present value of those future earnings.
  • Materials companies can also benefit from increased demand for raw materials driven by economic expansion and infrastructure projects.

Evidence & Analysis

  • During the Federal Reserve's rate hike cycle from December 2015 to December 2018, the S&P 500 Financials sector (XLF) outperformed the broader S&P 500 by approximately 5 percentage points.
  • Analysis by Fidelity shows that during periods of rising rates, the Energy sector has historically delivered the highest average returns, followed by Financials and Industrials.
  • According to a study by Charles Schwab, banks' net interest margins typically expand by 10-20 basis points for every 25 basis point increase in the federal funds rate.
  • The correlation between the 10-year Treasury yield and crude oil prices has historically been positive, indicating that rising rates often coincide with higher energy prices.
  • Companies with strong balance sheets and low debt-to-equity ratios, such as those often found in industrials, are less impacted by increased borrowing costs.

Key Companies

JPM

JPMorgan Chase & Co.

Large financial institution benefiting from expanding net interest margins during rising rates.

XOM

Exxon Mobil Corporation

Major energy company benefiting from higher commodity prices often associated with rising rates.

CAT

Caterpillar Inc.

Industrial company benefiting from increased infrastructure spending and economic activity.

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Generated by AlphaOS from the Knowledge Graph, earnings intelligence, and industry analysis. Content is for research and education only — not investment advice.