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Which sectors perform best during rising interest rates?

AlphaOS investment intelligence · Research and education only — not investment advice · Updated Sep 27, 2026

Direct answer

Financials, energy, materials, industrials, and consumer staples historically outperform during rising interest rate environments. Financial stocks—particularly banks and insurers—benefit directly as net interest margins expand when rates rise. Energy and materials companies gain because rate hikes often accompany inflationary periods that drive commodity prices higher. Real Estate Investment Trusts (REITs) and utilities underperform as their dividend yields become less competitive against risk-free rates. During the 2022–2023 Fed tightening cycle, when the Fed raised rates from 0.25% to 5.50%, the S&P 500 Financials sector and Energy sector were among the strongest relative performers while the Utilities sector fell over 20% peak-to-trough.

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Key Takeaways

  • Financials outperform because rising rates expand net interest margins (NIMs) — JPMorgan reported NIM expansion of ~100bps during the 2022–2023 tightening cycle, driving record net interest income above $89 billion in 2023
  • Energy sectors historically benefit as rate hikes correlate with inflationary environments; WTI crude averaged above $90/barrel during peak 2022 rate hikes, boosting earnings for ExxonMobil and Chevron to record levels
  • Materials and industrials gain pricing power during inflationary rate cycles — companies like Caterpillar and Freeport-McMoRan posted multi-year earnings highs in 2022
  • Consumer staples act as a defensive beneficiary — their inelastic pricing power allows margin preservation even as input costs rise, with Procter & Gamble implementing 5–10% price increases across product lines in 2022–2023
  • Insurance companies (life and P&C) benefit structurally — rising rates increase returns on their bond portfolios; Berkshire Hathaway's insurance float earned significantly more on reinvested premiums at higher yields
  • Utilities and REITs are the clearest losers — Utilities Select Sector SPDR (XLU) declined approximately 22% in 2022 as the 10-year Treasury yield rose from 1.5% to 4.2%, compressing yield spreads
  • Value-oriented sectors broadly outperform growth during rate hikes — the Russell 1000 Value index outperformed the Russell 1000 Growth index by approximately 20 percentage points in 2022
  • Short-duration financial instruments and floating-rate assets (bank loans, variable-rate preferred stocks) structurally reprice upward, benefiting holders of those instruments

Evidence & Analysis

  • During the 2022–2023 Fed rate hiking cycle (0.25% to 5.50%), the S&P 500 Energy sector gained approximately 60% in 2022 alone, making it the top-performing S&P sector that year by a wide margin
  • S&P 500 Financials sector net interest income expanded broadly in 2022–2023; the four largest U.S. banks (JPM, BAC, WFC, C) collectively reported over $200 billion in net interest income in 2023
  • Historical analysis of 12 Fed tightening cycles since 1954 shows Financials, Energy, and Materials sectors deliver positive absolute returns in the majority of those cycles
  • The 10-year Treasury yield rising from 1.5% to over 4.2% in 2022 caused Utilities (XLU) and REITs (VNQ) to underperform the S&P 500 by 15–25 percentage points, confirming rate sensitivity of yield-proxy sectors
  • Floating-rate loan funds (e.g., BKLN ETF) saw AUM inflows exceed $5 billion in 2022 as investors rotated into rate-sensitive instruments
  • Goldman Sachs and Morgan Stanley research from 2022 both identified Financials and Energy as top-quartile sector performers in rising-rate backtests going back to the 1970s Volcker era

Key Companies

JPM

JPMorgan Chase & Co.

Primary beneficiary — largest U.S. bank by assets; reported record net interest income of $89.3B in 2023 driven by Fed rate hikes

XOM

ExxonMobil Corporation

Energy sector beneficiary — posted record earnings of $55.7B in 2022 amid rate hike and commodity price surge

BRK.B

Berkshire Hathaway Inc.

Insurance and financial conglomerate — float-based investment income and banking holdings benefit directly from higher rates

FCX

Freeport-McMoRan Inc.

Materials sector representative — copper and gold miner benefiting from inflation-driven commodity demand during rate cycles

CAT

Caterpillar Inc.

Industrials bellwether — posted record revenues of $59.4B in 2023, benefiting from infrastructure spending and pricing power during inflationary tightening cycle

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