How to invest as interest rates rise?

financials. how do banks make money - loans..what about these loans? interest.

Bear CALL spreads.... finance some OTM PUTs if you want a little extra action. Bonds should go the way of the Yen, and lawd help the stock market when ZIRP ends.

Nothing happens in a vacuum. In general, rising interest rates should be bad for equities, because you discount the earnings at a higher rate, which should decrease valuations across the board. However, investors know that interest rates are artificially depressed, so that should have a substantially smaller effect than in normal environments.

In my mind, if interest rates rise from here, but not dramatically and sharply (this is what I expect), this means that the economy is getting stronger (and is recognized for getting stronger) which probably helps stock prices.

Gotham makes the good argument for buyside, generally speaking a rise in interest rates, especially in this environment, signals that we are fully fledged and back on track, the uptick in confidence would amount to pressure on the upside and seeing how cautious western economies have been in the timing of any rate discussions, it is likely that markets will view this as generally a good thing. Financials should all do well as basel has made them more conscientious about the risks involved with their lending and are likely to benefit.

The most obvious shorting ones are property companies and real estate developers, look at their exposure to mortgage markets, the elasticity of housing demand etc. I agree with DickFuld in that rates are artificially suppressed but the hunt for yield is pushing money into assets and equities so there may be a bit of a sell off when people reevaluate their risk tolerance and decide to move money from equities into more stable income streams. Although this is less likely to occur since a lot of central bankers are gradual guys with adaptive expectations.

A lot of articles in the FT are saying that we are currently overvalued in equities but we also know the confidence indication of a rate rise, reverting back to trading abc, the trend is your friend and the push/pull factors of each argument are likely to be aligned more towards a rise in equity values (as DickFuld states). I think if you're looking for the golden goose then you may be asking the wrong question. My personal opinion would be to screen some stocks you know have good cash supplies and when they looking to expand their growth, financing should be kept to a minimum.