Higher interest rates usually cause investors to grip the wheel a little tighter. But lately, something unexpected has been happening. A few industries aren’t just staying the same—they’re growing faster—despite rising borrowing costs.
For banks, rising rates have been particularly beneficial. The difference between what these institutions charge on loans and what they pay on deposits generates more revenue for them. Profitability has increased as a result of this gap, which was frequently disregarded during the ultra-low-rate years. And because default rates have remained stable, the added income hasn’t come with added risk.
| Aspect | Detail |
|---|---|
| Trend | Interest rates increased from 0.25% in 2022 to 5.0% by late 2024 |
| Resilient Sectors | Financials, Insurance, Brokerages, Industrials, Consumer Discretionary |
| Primary Advantage | Higher margins, stronger spreads, consumer-driven growth |
| Lagging Sectors | Real Estate, Utilities, Highly leveraged growth stocks |
| Outlook | Optimistic performance tied to sector fundamentals and adaptability |
Insurance firms are also doing very well. Their portfolios, which usually consist primarily of conservative assets and bonds, are now yielding substantial returns. The value of their long-term investment income is directly increased by higher interest rates. That’s especially true for insurers like Travelers or Allstate, which maintain steady, reliable cash flows and manage risk efficiently.
Brokerages have also benefited. In recent months, retail investors and institutions alike have adjusted their portfolios in response to rate expectations, leading to increased activity. Platforms like Schwab and Goldman Sachs have seen trading volumes surge. Not only that, but they’ve also earned more on client cash parked in interest-bearing accounts.
The industrial sector has shown a surprisingly strong hand. Demand is consistent for construction companies and manufacturers of equipment such as freight trucks and HVAC systems. Rising rates usually hint at economic cooling, yet housing starts and infrastructure projects have maintained encouraging momentum.
Consumer discretionary companies are another standout. Even mid-tier department stores have performed well, as have big-box retailers and home improvement behemoths. That’s because many consumers still feel secure in their jobs and are willing to spend on upgrades, travel, and comfort.
During a recent call, Home Depot executives reported that average spending per customer had increased, despite a slight decrease in project frequency. That detail lingered with me longer than expected.
It’s a reminder that data isn’t everything—behavior matters, too.
Meanwhile, real estate developers are grappling with a tougher environment. With mortgage rates higher, fewer buyers are qualifying for financing. Owners of commercial real estate are similarly squeezed, particularly if they are refinancing older debt at the higher rates of today.
Utilities are experiencing a slow bleed as well. Their business models depend heavily on debt to finance infrastructure. With higher borrowing costs and regulatory limits on rate hikes, margins are thinning. These companies remain essential, but they’re less agile in this new climate.
The fact that certain industries are clearly addressing the issue is encouraging. Financial firms have leaned into digital tools to become highly efficient, reducing overhead and streamlining services. Data is being used by industrial companies to quickly modify output and optimize supply chains. Even some retailers are blending tech and in-store experiences with a level of polish that feels particularly innovative.
Who got lucky isn’t the bigger lesson. It’s about preparation, structure, and responsiveness.
Sectors that entered this cycle with strong balance sheets and lean operations are now reaping the rewards. They’re proving that rate hikes, while disruptive, aren’t automatically a death sentence. In fact, they can be a growth driver for the appropriate model.
As investors recalibrate for a possibly extended period of higher rates, these outperformers offer a compelling blueprint. They’ve demonstrated how to turn a perceived disadvantage into a strategic edge.
Rate reductions are probably going to happen again in the future. But until then, this economic phase presents a test of business models. Who can adapt? Who can capitalize on costlier capital?
So far, the answer isn’t just reassuring—it’s remarkably effective. Even so, industries that are aware of their levers and maintain their agility are prospering. And that makes the next few quarters not just worth watching, but worth participating in.
