How will rising inflation and interest rates affect your stock portfolio?

Inflation is at its highest level since 1982, and the Federal Reserve is expected to raise interest rates several times in 2022 alone to try to keep it under control. In this crazy live Video clip, recorded on January 10, Fool.com contributors Matt Frankel, Jason Hall and Danny Vena discuss how inflation and rising rates could affect some of their favorite stocks, as well as the companies’ underlying businesses.

Matt Frankel: It is fair to say that much of this decline in growth is due to interest rate and inflation expectations. If interest rates and inflation continue to climb in 2022, say, as we were talking, Jamie Dimon said we’re going to get at least four rate hikes from the Fed this year, he thinks. It would be more than expected. If we continue to have high interest and inflation, what do you think that would mean for some of the stocks on this list? You can choose one or two to mention an effect if you like. If you want me to go first, anyway.

Danny Vena: I’m going to go there and start. When you look at companies like Nvidia (NASDAQ: NVDA) and MercadoLibre (NASDAQ: MELI) and I’m just going to pick those two since the ones I brought to the table, I don’t think the interest rate hikes are really going to make a big difference to their businesses. These are companies that, in MercadoLibre’s case, you’re talking about e-commerce and payments and MercadoLibre gets a cut of every transaction that happens on their platform. I don’t think it will change anything. With Nvidia, I think high-end gamers will continue to buy Nvidia chips. I think high-end data platforms and cloud operations are still going to use them, so no changes in those two areas.

Jason Hall: I think it’s worth mentioning because it doesn’t directly answer your question, but I think it’s important. I think for Boston Omaha (NASDAQ:BOMN), due to the acquisitive nature of its activities and the transactions entered into, a higher cost of capital could constitute a risk. This could affect its ability to get the best returns over time. I think that’s something investors need to understand a bit.

With Lemonade (NYSE: LMND), they’re going to have to keep adding capital. It could also weigh on their business and also because they’re not at the point where they’re like a regular insurance company that has a float, trying to make money off the float, they’re not necessarily winning rising higher interest rates and many other insurers are dying to get.

Frankel: Their CEO told me that investment income would be part of their strategy, but it really isn’t yet.

Room: It’s five years and up.

Frankel: As for mine, it’s really a binary. Bank of America (NYSE: BAC), I mentioned is likely to be a big beneficiary if we see rates and inflation continue to rise more than expected. If you’re in a business that lends people money, you want interest rates to be all things equal, you want interest rates to be high. As long as interest rates don’t rise enough to the point where they’re really costing consumers to rein in spending, I think that’s a big plus for Bank of America. As it concerns pinterest (NYSE: PINS), this would weigh on their share price. I think we will see growth stocks under pressure as long as interest rates and inflation continue to be high. Much of these booming giant growth stocks over the past few years is due to the fact that we have been in a record low interest rate environment.

Room: Least adjusted rate of return.

Frankel: These companies can raise capital for nothing in many cases. How many companies in our tech universe have entered into convertible debt deals at zero percent interest rates in 2020 and 2021?. Literally for nothing with the promise that you can buy stocks at some point. It’s that if we continue to see it running hot, I think that’s going to continue to weigh on the tech sector, unfortunately.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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