Money How a Rate Hike Could Help Investors

19:19  19 june  2017
19:19  19 june  2017 Source:   The Motley Fool

Loonie spikes after optimistic speech by Bank of Canada official

  Loonie spikes after optimistic speech by Bank of Canada official The Canadian dollar shot up Monday after a senior Bank of Canada official's speech talking up the positive health of the economy apparently had the market eyeing the possibility of an interest rate hike. The loonie had been trading near its Friday close of 74.26 cents US, but surged to 75 cents US after a prepared speech by Bank of Canada senior deputy governor Carolyn Wilkins was posted on the central bank's website.The Bank of Canada is due to make its next interest rate decision on July 12. The bank has not boosted its key overnight rate in seven years.

"Is the Fed announcing a rate hike next month?" Understanding the relationship between interest rates and the stock markets can help investors understand how changes might affect their lives, and how to make better investment decisions.

A Fed hike won't come before December, but now is the time for investors to figure out how to protect their wealth from higher interest rates . Looking at some of the half-truths offered to investors about Fed-fighting moves can help .

Last week, investors saw U.S. Federal Reserve chairwoman Janet Yellen raise the overnight interest rate in the United States. Although the markets moved on the news, nothing too drastic happened. Most investors sit on one of two sides: either the rate hike was overdue, or it is still too soon. We need to ask ourselves what a rate increase would mean for Canada and how we as investors can make money from this situation.

For Canadians investing in the stock market, there is a domino effect which involves a lot of different business and investment drivers. Although no rate hike has yet to be announced by the Bank of Canada, it is worth noting that the 10-year Government of Canada bond rates have increased from a yield of approximately 1% a year ago to a yield closer to 1.5%. The yield has increased by 50 basis points or by 50%, depending on how we want to look at the situation.

Why the Bank of Canada looks ready to start raising interest rates again

  Why the Bank of Canada looks ready to start raising interest rates again For the first time since oil prices crashed, strong job growth has the Bank of Canada worried about inflation, meaning higher interest rates are comingRY.PR.

How to Play the Fed's Interest Rate Hike in 2016. How to Invest in Bonds as Interest Rates Rise. Rising rates help to curb inflation, keeping it from getting out of hand and hurting the economy even worse. General Electric's Investors Could Be Hammered By Yet Another Vicious Sell-Off.

All Investing Advice ». Can REITs Survive an Interest Rate Hike ? That said, investors may want to watch how interest rate markets handle a rate increase. A frank talk about finances and investing can help engaged couples reduce money-related stress later on.

The first and most obvious effect the increase in rates will have is a higher cost of borrowing for Canadians who have taken on debt (both unsecured and mortgage debt). This will translate to higher revenues for Canada’s lenders. Next, higher rates could lead businesses to reconsider undertaking new projects as the higher cost to borrow may mean projects will no longer meet the higher hurdle rates.

While a decline in borrowing will not help the overall economy, it is important to understand what that means for the current profitability for any one of Canada’s lenders. As loans are paid back, the cash inflows then become available for dividends and share buybacks as less money will be required to expand the balance sheet. While a number of Canada’s big banks have an adequate divide between the payout and retention rates, the fact of the matter is that these companies may need less capital to lend out while having additional cash flows to return to shareholders.

Caution: Mortgage Rates Could Start Rising ‘As Soon As July'

  Caution: Mortgage Rates Could Start Rising ‘As Soon As July' Canada’s economy is red-hot these days. And that’s the principal reason why Canadians could see mortgage rates rising before the end of the year. In the first quarter of this year, Canada recorded a 3.7-per-cent annualized pace of economic growth, the strongest among G7 countries. Canada added 77,000 full-time jobs in May, and over the past year, the country has seen total jobs increase by 1.8 per cent, faster than population growth. When an economy strengthens, there is less slack and inflation typically picks up. When inflation picks up, central banks raise interest rates.So far, inflation has been tepid in Canada. But every sign points to that changing soon.

But a Fed hike remains controversial. A premature interest- rate increase could hamstring in the U.S. economy just as it is starting to So investors should check with a financial professional to make sure that any investment is right for them. Read: How the Stock Market Can Help You Survive in Retirement.

You can get a sense for how much a rate hike will help Bank of America by looking at its latest quarterly filing with the Securities and Exchange Given this, the most pertinent question for investors right now is: How much will a 25 basis point boost to short-term rates help Bank of America?

Bank of Montreal(TSX:BMO)(NYSE:BMO) is currently trading at a very reasonable 11.5 times trailing earnings while offering investors a dividend yield close to 4%. Although investors typically don’t want to invest in a shrinking pie, the market may already be pricing in a contraction in Canada’s banking sector. Investors will have to be patient to see how Canada’s banks respond to the challenge.

The good news for the day-to-day operation of Canada’s biggest lenders will be that higher rates will lead to higher margins when considering the difference between the rate banks offer savers and what is charged to borrow money for any lending product. Although 25-50 basis points is not a lot, the reality is that 50 basis points is still 50% more than the 1% yield offered just one year ago. For long-term shareholders in Canada’s biggest banks, things may improve as we move forward.

Canadian retail sales top April forecasts

  Canadian retail sales top April forecasts Canadian consumer spending in April was stronger than expected, which economists say lends weight to the Bank of Canada's recent suggestions that interest rate hikes could be on the way. define("homepageFinanceIndices", ["c.deferred"], function () { var quotesInArticleFormCode = "PRMQAP"; var config = {}; config.indexdetailsurl = "/en-ca/money/indexdetails"; config.stockdetailsurl = "/en-ca/money/stockdetails"; config.funddetailsurl = "/en-ca/money/funddetails"; config.etfdetailsurl = "/en-ca/money/etfdetails"; config.recentquotesurl = "/en-ca/money/getrecentquotes"; config.

An interest rate hike isn’t a 100-percent probability; plenty of factors could cause the Fed to decide to hold off until 2017. However, with high expectations that a rate increase could come in the last month of this year, investors might wish to start How to Maximize Your Investing Strategies for the New Interest Rates . As rates rise, this income can help offset falling prices. 5. Don’t Rely on Cash.

Showcase your expertise to 20+ million investors . Join Now. Keeping inflation at a growth rate of 2% helps the economy grow at a healthy rate . Adjustments to the federal funds rate can also affect inflation in the United States.

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Canadian dollar tops 76 cents US as Poloz comments raise spectre of rate hike .
The Canadian dollar gained three-quarters of a cent and hit its highest level in four months on Wednesday after Canada's central bank head hinted in an interview that rate hikes could be coming sooner rather than later. define("homepageFinanceIndices", ["c.deferred"], function () { var quotesInArticleFormCode = "PRMQAP"; var config = {}; config.indexdetailsurl = "/en-ca/money/indexdetails"; config.stockdetailsurl = "/en-ca/money/stockdetails"; config.funddetailsurl = "/en-ca/money/funddetails"; config.etfdetailsurl = "/en-ca/money/etfdetails"; config.

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