The Silver Linings of Higher Interest Rates

Published on 10/24/2026

When interest rates rise, the headlines are almost always negative.

Buying a house gets more expensive. Credit card balances become more difficult to pay off. Businesses face higher borrowing costs and consumers rein in their spending.

Creating some financial pain is kind of the point. The Federal Reserve raises rates to slow economic activity and bring inflation under control.

That’s what happened in mid-September, when the Fed hiked rates for the first time in three years. Earlier this month, the 10-year U.S. Treasury yield topped 5.3%, its highest level since April 2002.

The last time bond yields were this high, our current vice president was in high school and the first episode of “The Apprentice” had yet to air.

So, most of us can be forgiven for forgetting about the benefits that come alongside the challenges: Lower risk investments finally offer reasonable returns.

Personal accounts

Savings accounts, certificates of deposit (CDs) and high-quality bonds have paid exceptionally low interest for most of the last 20 years. Today, those conservative investments look more attractive.

Cash alternatives such as money market funds are paying 3.5% or more. Investment-grade corporate bonds yield 5% to 6% (even higher for longer-dated maturities).

For families with high taxable incomes, municipal bonds are worth your attention. A Minnesota family landing in the top tax brackets can earn taxable equivalent yields around 8% from high-quality individual municipal bonds.

Making companies stronger

Higher rates also impose a healthy dose of discipline on businesses.

When it’s dirt cheap to borrow money, even poorly run companies can stay afloat by increasing debt and then continually refinancing those liabilities. These are sometimes called “zombie companies” because they continue operating despite weak fundamentals and limited profitability.

As borrowing costs rise, those businesses are forced to improve efficiency or exit the market altogether. While that adjustment can be painful, it ultimately directs capital toward stronger companies that generate sustainable profits.

New opportunities in the stock market are also created.

For years, it’s been “Big Tech vs. everything else” when it comes to U.S. equities. It’s not a coincidence that interest rates stayed historically low during the years technology stocks grew to dominate the S&P 500.

Sectors to watch

Through the lens of valuation, expectations of future growth are most rewarded when rates are low. When interest rates are higher, the market assigns relatively more value to present cash flows.

That’s not to say technology stocks will be poor investments going forward, but different types of businesses tend to perform better or worse when interest rates rise or fall.

Financial firms benefit from higher rates because banks can expand their interest margins and earn more money on massive cash reserves.

Utilities pay high dividends but suffer when rates rise because investors can be lured toward lower-risk bonds offering similar yields. If rates have neared their peak, however, utilities could prove attractive.

Housing market reset

It may seem counterintuitive, but higher rates could also bring some balance to an overheated housing market.

Low interest rates, of course, mean lower monthly mortgage payments. But rates that stay too low for too long can fuel rapid price appreciation and speculative behavior.

Think: Wealthy individuals or hedge funds building luxury homes solely for vacation rentals, then charging thousands of dollars per night. None of that is good for affordability.

Other signs of a heavily unbalanced housing market: Buyers frequently waiving inspections, bidding far above asking prices and making major financial decisions for fear of being left behind. Higher borrowing costs tend to cool those behaviors.

None of this means higher interest rates are universally beneficial. The objective is to restore balance and longer-term financial health.

Some of that process can be painful, but silver linings can be found if you know where to look.

They also have a diversifying benefit. In recent years, utilities have been among the best-performing equity sectors during periods when Big Tech/AI companies have faltered.

Industrials can benefit when interest rates are elevated if inflation is a byproduct of a growing economy. Companies involved in machinery, aerospace, defense and manufacturing generally maintain the pricing power to pass on (and benefit from) rising costs.

Authors

Ben Marks & Brett Angel

Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments and strategies may be appropriate for you, consult with us at Marks Group Wealth Management or another trusted investment adviser. Mention of individual equities in this commentary are for informational purposes only and are not intended to represent a recommendation.

Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets.

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