The higher-for-longer interest rate regime poses a direct threat to company profitability, but some stocks are a lot less vulnerable to higher borrow costs, according to Goldman Sachs. "Increased interest expense was the primary headwind to aggregate ROE and was also a headwind across every sector this year," David Kostin, head of U.S. equity strategy at Goldman, said in a note to clients.
"If rates continue to rise or stay higher for longer, increased borrow costs would disincentivize companies to take on greater amounts of leverage," Kostin said. Goldman said it expects investors to reward stocks which are more immune to rising rates as they offer stability amid the uncertainty around the economy. The Wall Street firm screened the S & P 500 for stocks with low leverage, high interest coverage and low EBITDA growth variability.
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