Stock Winners and Losers if the RBA Raises Rates

RBA to raise rates?

The market is now pricing a 50-50 chance of a rate hike late in 2026.

Businesses are investing again after being Scrooge-like with their cash balances and the unemployment rate is low.

Higher inflation remains the albatross around the RBA’s neck though.

Today I’ll share some potential winners and losers from the expected RBA rate hikes in 2026.

It’s not all doom and gloom for the more speculative parts of the market.

The key is to be more selective – which is a good thing.

When a wall of money unleashes the small-cap and micro-cap animal spirits bad companies are often rewarded.

So this is an opportunity to return to core principles in stock selection.

First though, here’s what might be best avoided.

Stocks to avoid if
rates go higher

Real estate investment trusts (REITs) are first on my watch list of stocks to avoid.

Rising yields put direct pressure on REITs. These stocks have been bond proxies for years, and that trade is about to reverse hard.

Macquarie’s Matthew Brooks has already flagged the weaker momentum in Goodman Group [ASX:GMG], Mirvac [ASX: MGR], and Scentre Group [ASX:SCG].

The math is simple. REITs use debt to acquire properties. Higher rates mean higher interest costs. That flows straight to the bottom line. It also means the discount rate on their future cash flows goes up, which can further compress valuations.

But there’s an additional effect to consider . It’s not just about financing costs. REITs are also facing pressure on the demand side.

Which brings me to retail.

Particularly discretionary retail. The kind where people walk into a store and buy something they don’t actually need.

Higher rates mean higher mortgage repayments. That leaves less money in the household budget for discretionary spending. The consumer is already stretched. Wesfarmers [ASX:WES] and Super Retail Group [ASX:SUL] have both seen analysts mark down profit expectations after the AGM season.

Accent Group (ASX:AX1) and Temple and Webster [ASX:TPW] have been suffering badly of late too.

The once-cautious consumer might be becoming more optimistic, but optimism doesn’t pay the bills. When mortgage repayments eat up a bigger slice of household income, retail stocks feel the pain.

Stocks to benefit
from higher rates

Resources stocks are the clear winners when rates go up.

Macquarie’s analysis shows resources have beaten industrials ahead of the past five hiking cycles, with average outperformance close to 9%. In the three most recent cycles, small cap resources beat their larger peers by 16-21%.

The logic is straightforward. The same rise in growth and inflation that leads the RBA to hike also drives stronger earnings per share growth for resource companies.

Commodity stocks do well when inflation is high. If the RBA is raising rates, it means they’re responding to inflation. That’s your signal.

Gold in particular stands out. It had a massive run, then a pause, and I’m bullish over the next 6 to 12 months at least.

But I’m also watching natural gas and oil.

Oil could be back on the menu. The recent move in oil prices last week likely reflected the broader reflation trade.

As economies accelerate and central banks start tightening, energy demand rises.

The AI build-out is also creating structural demand for energy. Data centres don’t run on hopes and dreams. They run on electricity, often generated from natural gas.

Small caps to do well
even if rates go higher?

This can’t be ruled out.

The ASX Emerging Companies index outperformed the ASX 200 by about 5% last week.

This makes sense, small caps and micro caps fall harder but can bounce back quicker.

While small caps and micro-caps generally benefit from low interest rates, a high interest rate environment can work if you are very selective.

The key is focusing on companies with genuine catalysts and strong news flow.

Cash balances become more important in a constrained capital markets environment where raises are harder to get away. Lower enterprise value companies will have to raise less.

This is where selectivity becomes critical. The broad market might struggle, but individual companies with the right characteristics can still perform.

Look for companies with international exposure, genuine competitive advantages, and management teams that understand how to develop quality projects.

Which means I’m laser focussed on quality resource companies right now.

If you’ve ever wanted to understand how to pick the right resource companies, you’re in luck. Click here to read what our highly experienced in-house geologist James Cooper is saying about the coming boom for these types of companies.