Interest-Sensitive Stock

Interest-sensitive stock

Stocks whose earnings are dependent upon and change with the interest rate, e.g., bank stocks.

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interest-sensitive stock

A stock whose price tends to move in the opposite direction from that of interest rates. Interest-sensitive stocks include nearly all preferred stocks and the common stocks of industries such as electric utilities and savings and loans. A common stock may be interest-sensitive either because its dividend is relatively fixed (as with an electric utility) or because the firm raises a large portion of its funds through borrowing (as with a savings and loan or a commercial bank).

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Interest-Sensitive Stock

A stock with a price that declines when interest rates rise and advances when interest rates fall. Common examples of interest-sensitive stocks include shares in utility companies and some financial institutions, especially thrifts. These stocks move inversely to interest primarily because company earnings are dependent upon low costs of borrowing. For example, an electric company is capital intensive and tends to carry a large amount of debt. If interest rates rise, this increases the company's overhead and therefore reduces its earnings.