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Rising interest rates are a problem for more than just interest rate-sensitive sectors. It’s affecting very broad areas of the stock and bond markets. Dozens of stocks and ETFs are hitting 52-week lows on the relentless rise in interest rates. The usual suspects are the hardest hit. In equities, it’s REITs and utilities. Utility/REIT ETFs: New lows Utilities Select Sector SPDR Fund (XLU) Vanguard Utilities ETF (VPU) Vanguard Real Estate ETF (VNQ) Schwab US REIT ETF (SCHH) Notably, Treasury bond ETFs are hitting new lows across the entire yield curve spectrum. Treasury bond ETFs: New lows iShares 1-3 Year Treasury Bond ETF (SHY) iShares 7-10 Year Treasury Bond ETF (IEF) iShares 10-20 Year Treasury Bond ETF (TLH) iShares 20+ Year Treasury Bond ETF (TLT) It’s not just Treasury bonds. The two largest bond ETFs, the $92 billion Vanguard Total Bond Market ETF (BND) and the $90 billion iShares Core US Aggregate Bond Fund (AGG), which hold a mix of government, corporate and mortgage-backed securities, are also at new lows. Broad bond ETFs: New lows Vanguard Total Bond Market ETF (BND) iShares Core US Aggregate Bond Fund (AGG) Higher rates are affecting other areas of the U.S. economy: look at clean energy and biotech It’s simple. Higher interest rates make the cost to fund new projects more expensive. The more capital intensive, the higher the borrowing costs. Two examples are clean energy and biotech. At the end of August, Orsted, a Denmark-based renewable energy provider, said it may book significant impairments of up to $2.3 billion for its wind development projects in the U.S., citing supply change challenges and rising interest rates. Recently, NextEra Energy’s renewable-energy subsidiary, NextEra Energy Partners, revised down its annual growth expectations due to higher borrowing costs. That’s pushing clean energy ETFs to new lows. Clean energy ETFs: New lows iShares Global Clean Energy (ICLN) VanEck Low Carbon Energy ETF (SMOG) Invesco WilderHill Clean Energy ETF (PBW) Invesco Solar ETF (TAN) It’s the same story with biotech. The SPDR S & P Biotech ETF (XBI) , which tracks an equal-weighted index of US biotechnology stocks, is at a 52-week low. But the iShares Biotechnology ETF (IBB) , which tracks a market-cap-weighted index of biotech stocks, is not yet at a 52-week low. Why? Because the equal-weight XBI has many more small-cap stocks than the market-cap weighted IBB. Biotech is boom and bust to begin with, but biotech in particular has a lot of small cap names, which makes it even more difficult to keep raising money when rates go up. Juicy yields, if you can stand the risk Outside of REITs and utilities, dividend-paying stocks in general compete with Treasurys and bonds for investor money. Right now, they’re having a hard time. Many dividend-paying funds like iShares Select Dividend (DVY) are at new lows. It holds stocks like Verizon and Altria. The SPDR Telecom ETF (XTL), which holds companies like Verizon and AT & T, is at a new low as well. The selloff in dividend stocks is driving yields up even more in that group. S & P 500: Highest dividend yields Altria 9.4% Verizon 8.4% AT & T 7.6% Simon Property 7.3% Crown Castle 6.9% Bank yields are also in stratospheric territory. Bank yields KeyCorp 7.9% Truist 7.5% Comerica 7.1% Citizens Financial 6.5% Huntington Bancshares 6.2% Those are juicy yields, if you can stand the risk.
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