Bank of America has predicted that the Federal Reserve will be forced to raise interest rates by 75 basis points this year, with the first 25-basis-point hike in September. They also see additional 25-basis-point hikes in October and December. The energy shock from the war with Iran drove inflation higher, with the CPI rising in May to 3.8%, the sharpest increase in three years and well above the Fed’s 2% target. This, in turn, has prompted lenders to demand higher rates to protect returns. Meanwhile, investors sold bonds amid rising inflation and concerns about U.S. debt, which lifted Treasury yields. Since mortgage rates are based on the 10-year Treasury yield plus a risk premium, they rose in tandem. On the fiscal side, federal interest payments now exceed spending on Medicaid, national defense, and all nondefense discretionary programs combined, adding further upward pressure on long-term borrowing costs.
The team at Bank of America frames the rate increase argument on the hand that new Fed Chair Kevin Warsh was dealt, noting the following when discussing the potential for rate hikes this year:
We now expect three 25-basis-point Fed hikes this year, in September, October, and December. This would take the policy rate to 4.25-4.5%. We were skeptical of the need for cuts in 2025. Both the data and our updated read of the Fed’s reaction function suggest it will reverse those cuts in short order. We think the Fed will stay on hold next year. Inflation is likely to remain sticky, keeping the real policy rate from becoming overly restrictive. Meanwhile, the Fed’s inflation problem has gotten unambiguously worse. Core PCE could reach 3.5% in May, nearly 70bp higher than it was a year ago. The pickup has been partly due to tariffs and other one-offs. The Fed was willing to look through the tariffs, but it is losing patience after the latest round of supply shocks. Also, housing-driven disinflation has now mostly run its course, while other core services remain very sticky.
Typically, when interest rates go higher, these four sectors tend to win:
- Financials
- Energy
- Healthcare
- Consumer Staples
We screened our 24/7 Wall St. dividend stocks database for quality companies that pay big, dependable dividends and generate reliable passive income. We found four companies, one in each sector, that are solid bets if the upward trend in interest rates remains and Bank of America is correct in three rate hikes. All are rated Buy by the top Wall Street firms we cover.
Financials: Wells Fargo
Financials are the biggest winner. Banks earn a wider spread between what they pay depositors and what they charge borrowers. Insurers earn more on their investment portfolios. The sector almost mechanically benefits from rising rates, as net interest income rises.
Wells Fargo (NYSE: WFC | WFC Price Prediction) operates in 35 countries and serves over 70 million customers worldwide. This money-center giant makes sense, given its 2.09% dividend, as many of the issues that plagued the company over the past five years appear to have been resolved. This financial services company offers a diverse range of banking, investment, mortgage, and consumer and commercial finance products and services in the United States and internationally.
The company operates through four segments. The Consumer Banking and Lending segment offers a diverse range of financial products and services tailored to meet the needs of consumers and small businesses. These include checking and savings accounts, credit and debit cards, as well as home, auto, personal, and small business lending services.
The Commercial Banking segment provides financial solutions to private, family-owned, and specific public companies. Its products and services include banking and credit products across various industry sectors and municipalities, as well as secured lending and lease products, and treasury management services.
The Corporate and Investment Banking segment offers a suite of capital markets, banking, and financial products and services, such as:
- Corporate banking
- Investment banking
- Treasury management
- Commercial real estate lending and servicing
- Equity and fixed-income solutions
- Sales, trading, and research services to corporate, commercial real estate, government, and institutional clients
The Wealth and Investment Management segment provides wealth management, brokerage, financial planning, lending, private banking, and trust and fiduciary products and services to affluent, high-net-worth, and ultra-high-net-worth clients. It also operates through financial advisors in brokerage and wealth offices, consumer bank branches, independent offices, and digitally through WellsTrade and Intuitive Investor.
Barclays has an Overweight rating and a $108 target price.
Energy: Chevron
Energy benefits because rate hikes typically coincide with inflation, and oil and gas prices are a primary driver of inflation. Higher commodity prices equal higher revenues. It’s the inflation hedge play, and it has been the strongest-performing S&P sector so far in 2026.
Chevron (NYSE: CVX) is an American multinational energy company that primarily focuses on oil and gas. It is a safer option for investors looking to position themselves in the energy sector, and it pays a substantial 3.84% dividend, which was raised by 5% earlier this year. The company operates integrated energy and chemicals businesses worldwide.
Chevron operates in two segments. The Upstream segment is involved in:
- Exploration, development, production, and transportation of crude oil and natural gas
- Processing, liquefaction, transportation, and regasification associated with liquefied natural gas
- Transportation of crude oil through pipelines, and transportation, storage
- Marketing of natural gas, as well as operating a gas-to-liquids plant
The Downstream segment engages in:
- Refining crude oil into petroleum products
- Marketing crude oil, refined products, and lubricants
- Manufacturing and marketing renewable fuels
- Transporting crude oil and refined products by pipeline, marine vessel, motor equipment, and rail car
- Manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives
It also involves cash management, debt financing, insurance operations, real estate, and technology businesses.
Mizuho has an Outperform rating and a $230 target price.
Healthcare: Merck
Pricing power and steady demand insulate the top healthcare names. They don’t directly benefit from higher rates, but they tend to hold up well because their earnings do not erode as much as those of interest-sensitive sectors.
Merck (NYSE: MRK) develops and produces medicines, vaccines, biological therapies, and animal health products. It is not just a healthcare company but a global force in the industry, paying a solid 2.84% dividend.
Merck operates through two segments. The Pharmaceutical segment offers human health pharmaceutical products in:
- Oncology
- Hospital acute care
- Immunology
- Neuroscience
- Virology
- Cardiovascular
- Diabetes
- Vaccine products, such as preventive pediatric, adolescent, and adult vaccines
The Animal Health segment discovers, develops, manufactures, and markets veterinary pharmaceuticals, vaccines, health management solutions and services, and digitally connected identification, traceability, and monitoring products.
Merck serves:
- Drug wholesalers
- Retailers
- Hospitals
- Government agencies
- Managed healthcare providers, such as health maintenance organizations
- Pharmacy benefit managers and other institutions
- Physicians
- Physician distributors
- Veterinarians
- Animal producers
Merck’s growth is a result of its efforts and strategic collaborations. The company works with AstraZeneca, Bayer, Eisai, Ridgeback Biotherapeutics, and Gilead Sciences to jointly develop and commercialize long-acting HIV treatments, demonstrating a commitment to innovation and growth.
UBS has a Buy rating with a $145 target price.
Consumer Staples: Altria
Although consumer staples do not directly benefit from interest rates, they still emerge as relative winners. By delivering essential products, they maintain stable revenues regardless of the broader economic cycle, making them attractive to investors seeking a reliable safe haven.
Altria (NYSE: MO) is one of the world’s largest producers and marketers of cigarettes and other tobacco-related products. This stock offers value investors a great entry point. Altria manufactures and sells smokable and oral tobacco products in the United States and is the undisputed yield leader among consumer staples Dividend Kings. Its annual dividend of $4.24 per share currently yields 6.1%.
The company primarily sells cigarettes under the Marlboro brand, as well as:
- Cigars and pipe tobacco, principally under the Black & Mild and Middleton brands
- Moist smokeless tobacco and snus products under the Copenhagen, Skoal, Red Seal, and Husky brands
- on! Oral nicotine pouches
- e-vapor products under the NJOY ACE brand
It sells its tobacco products primarily to wholesalers, including distributors and large retail organizations, such as chain stores.
Altria used to own over 10% of Anheuser-Busch InBev (NYSE: BUD), the world’s largest brewer. In 2024, the company sold 35 million of its 197 million shares through a global secondary offering. That represents 18% of its holdings but still leaves 8% of the outstanding shares in its back pocket. Altria also announced a $2.4 billion stock repurchase plan partially funded by the sale.
UBS has a Buy rating with a $76 target price.
Top Gaining Stocks
Top Losing Stocks