Financial stocks are most sought-after in a rising interest rate environment because of the positive correlation of their revenues with interest rates. However, given their fundamental weakness, UWM Holdings Corporation (UWMC) and Upstart Holdings, Inc. (UPST) are witnessing a high short interest. So, I think these two stocks are inappropriate for investors looking to capitalize on the rising interest rate environment.
Before discussing the fundamentals of these financial services stocks in detail, let’s discuss what’s happening in the financial sector.
The Fed funds rate has increased from near zero in March 2020 to between 4.75% and 5% now. Since last year, the Fed has aggressively raised interest rates to bring inflation down. Although inflation fell for the eighth consecutive month in February, it remains above the central bank’s long-term target.
The recent bank collapses have continued to strain the financial system. The financial sector’s stability remains a…
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