Heads up! Fed Chair Jerome Powell has said that the US Federal Reserve could increase the size of its interest rate hikes and raise borrowing costs to higher levels than previously projected - if evidence continues to point to a robust economy and persistently high inflation. This raises the possibility that the Fed will increase its benchmark rate by a half-percentage point at its next meeting on 21-22 March. 

However, investors should take note that the rate hike is data-dependent to support a need to raise interest rates further. Investors should keep in mind that Non-Farm Payroll (NFP) numbers (this week) and the Consumer Price Index (CPI) data (next week) will be the main drivers of investor sentiment on the rate hike increase.

In this article, we’ll examine two ways to navigate the next interest rate decisions.

Increased Interest Rates Scenario

If interest rates continue to increase, investors can look at sectors that can flourish in a higher interest rate environment. For example, financial institutions tend to benefit from higher interest rates, as it can increase the interest income they earn on loans, premiums, and other investments. 

Let’s look at one of the companies we are eyeing should the Fed decide to follow through with yesterday’s hawkish comments.

Cincinnati Financial Corporation (CINF)

Cincinnati Financial Corporation is a conglomerate of insurance firms that provide property and casualty insurance for individuals and businesses. John Jack Schiff and Robert Cleveland Schiff, two brothers, were among the four agents who established the company in 1950. It has its headquarters in Fairfield, Ohio. Also, the company has a staff of over 5,000.

CINF offers life insurance, disability income insurance, and property insurance through its subsidiary companies, including the Cincinnati Insurance Company, the Cincinnati Indemnity Company, the Cincinnati Casualty Company, and a few lesser-known ones, like the CFC Investment Company. One of CINF's subsidiaries, CinFin Capital Management Company, additionally offers asset management services.

 Cincinnati Financial has an annual dividend yield of 2.34% and a 5-year dividend growth rate of 10.40%. CINF has continuously increased its dividends for 63 straight years and is a part of the elite Dividend Kings.

Analyst Rating and Opinion

Analysts rate Cincinnati Financial a “Moderate Buy” rating based on 2 Strong Buys and 4 Holds from analysts. CINF’s mean target price is $125.20, with a high target of $130.00, an upside of 11.11% based on its last trading price.

Barchart’s Opinion Rating gives CINF an 88% Buy based on its current technical signals.

Interest Rates after meeting NFP/Inflation Targets Scenario

If the NFP and Inflation targets are met in the next NFP and CPI releases and the Fed decides to maintain interest rates, investors can consider companies outside of financials. For example, investors can look to industrials that have a strong financial position and lower debt levels to withstand the high-interest rate environment. YTD, industrials have been one of the leading sectors. 

Here’s one company we think investors should keep tabs on in this continuously changing market.

Parker Hannifin Corporation (PH)

Parker Hannifin Corporation is a firm specializing in producing motion and control technologies. Additionally, it offers engineered solutions for the aerospace, industrial, and mobile markets. The company was founded in 1917 by Arthur L. Parker and is currently headquartered in Cleveland, Ohio, the U.S. It was formerly known as the Parker Appliance Company and is frequently referred to as Parker. 

 With more than 55,000 employees, the company is one of the biggest in the motion control technology industry.

 Parker Hannifin provides service through two subsidiaries: 

 The Diversified Industrial Industry Sector includes products, engineered solutions, and services used by other businesses in the industrial sector.

 The Aerospace Systems Sector provides aftermarket support for and sells commercial transports, engines, helicopters, military aircraft, missiles, and unmanned aerial vehicles.

 Parker Hannifin Corporation has an annual dividend yield of 1.48% and a 5-year dividend growth rate of 71.32%. PH is expected to announce its 2nd interim dividend for the year in the last week of April. PH has continuously increased its dividends for 66 straight years and is a part of the elite Dividend Kings.

Analyst Rating and Opinion

Analysts rate Parker Hannifin Corporation a “Moderate Buy” rating based on 7 Strong Buys, 5 Holds, and 1 Strong Sell from analysts. PH’s mean target price is $358.00, with a high target of $405.00, an upside of 11.67% based on its last trading price.

Barchart’s Opinion Rating gives a 100% buy based on its current technical signals.

Final Thoughts

Overall, it's crucial for investors to consider the current interest rate environment and how the Fed responds to economic data when making investment decisions. It’s always best to stay up-to-date on the latest economic news and Fed announcements better to understand the impact of interest on these data-driven responses to make informed decisions. As of now, investors might want to wait and see what the numbers say and how the Fed responds before making any decisions.

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