With Rates on the Rise, Lean Into the Financials Sector

Of all the macroeconomic headlines that occurred this week, none were likely quite as impactful as the Fed’s decision to raise interest rates. Key Takeaways: - The Federal Reserve recently raised interest rates, creating a potentially more challenging environment for many equity and fixed income approaches. - One equity sector that tends to do well amid rate hikes is the financials sector, given how banks and wealth management giants can leverage higher rates to their benefit. - Investors can facilitate targeted access to this sector through the State Street Financial Select Sector SPDR ETF (XLF). Granted, many advisors and investors did see the Fed’s announcement coming. Inflation has remained a persistent issue throughout much of the year, and many key Fed members have become increasingly favorable towards raising rates. That being said, this is still the first time that interest rates have gone up in over three years. The last time this happened was back in July of 2023. Of course, rising interest rates can mean different things for one’s equity and fixed income portfolios. In the equity space, some sectors don’t tend to perform as well amid a rate hike, but others do tend to do quite well. See More: Got AI Trepidation? Hedge Your Bet With Industrials A Fine Time for Financials One sector that does have a track record for performing well amid rate hikes is the financials sector. Within the financials sector, banks can expand their net interest margins by charging higher interest rates on loans while keeping deposit rates low. Meanwhile, wealth management giants can also charge larger fees on their cash balances. Those are just a few examples, but showcase how the financials sector is one that can opportunistically benefit from increasing interest rates, even if other equity approaches potentially falter. See More: XLC: Combining AI Growth & Telecom Defense Putting this together, concentrated exposure to the financials sector could pay off in both the near-term and long-term. State Street offers low-cost access to the sector through the State Street Financial Select Sector SPDR ETF (XLF). XLF invests in a variety of companies within the financials sector of the S&P 500. This includes household names like Berkshire Hathaway, Visa, and Bank of America, as of September 15, 2026. Leaning into these financial giants may pay off as both a near-term interest rate play and a long-term growth opportunity. These companies are broadly well-positioned to ride out a higher rate regime, and fostering targeted financials exposure can help one build a more balanced portfolio. As such, XLF and its subsequent equity sector may warrant a closer look. For more news, information, and analysis, visit our Sector Investing Content Hub.