Both in his first and second term, President Trump has made it known his preference for lower interest rates in order to prevent an economic slowdown. However, the Trump-appointed Jerome Powell as the Fed Chair has other priorities.
Last Wednesday, Powell continued the 4.25% – 4.5% federal funds rate regime, having been in that range since December. The main reason for not cutting rates is that “risks of higher unemployment and higher inflation have risen”. In other words, the fear of stagflation is back, which is a good time to revisit range trading strategies. A higher interest rate for longer cools demand which in turn clamps down rising prices. And if inflation is curbed, toward the Fed’s ideal 2% target, the resulting price stability paves a stronger road for growth.
This is a balance between short-term pain and long-term gain, but it may not be politically expedient for the Trump admin. Yet, from an investing perspective, certain industries benefit from elevated interest rates.
1. Mitsubishi UFJ Financial Group
During Japan’s parliamentary session on May 19th, Bank of Japan (BoJ) deputy governor Shinichi Uchida said that rising interest rates are on the table if inflation is moving toward the 2% target, alongside rising economic growth.
Since the end of 2015, BoJ has implemented a negative interest rate of -0.1%, which only changed in February 2024, having risen since to present 0.50%. As one of the largest banking institutions in Japan, Mitsubishi UFJ Financial Group Inc ADR (NYSE:MUFG) is poised to benefit from this scenario.
Firstly, there is greater profit space from interest-sensitive assets like loans vs liabilities on saving account deposits. In other words, asset yields rise faster than deposit costs. Secondly, just like the Fed, BoJ pays interest on reserves held in the central bank.
Although the Japanese economy is perceived as stagnant due to an aging population, over the decades this resulted in numerous structural safeguards to prevent a liquidity crisis. Moreover, Japanese society itself is structured to enforce lifetime employment and corporate loyalty.
It also bears noting that Japan is still the largest holder of US Treasury Securities, presently at $1.13 trillion. In early May, Japan’s Finance Minister Katsunobu Kato openly said that this is a bargaining chip in the nation’s trade negotiations with the US, with a caveat that “whether we actually use that card, however, is a different question”.
For the entire Eastern Asia, the 360-year old MUFG ranks as the 6th largest financial institution. And because of Japan’s perception, investors typically avoid its banking exposure.
At its current price of $13.70, MUFG stock is below the average price target of $14.72, per WSJ’s forecasting data. The bottom target is $10.89 while the ceiling for MUFG shares is $17.95.
Of the 12 analysts contributing to this price target range, zero think this is time to sell. 6 think MUFG should be bought while 5 believe MUFG stock should be held. On June 27th, MUFG shareholders will meet to discuss another major bump in the bank’s dividend yield.
2. Enbridge Inc.
In May, the energy infrastructure company posted another strong Q1 earnings, beating analyst expectations. This trend is extremely likely to continue, as Enbridge Inc (NYSE:ENB) carries the weight of power needed for massive AI data center projects into the future.
As such, the utility company’s price-to-earnings (P/E) ratio is 23, beating the estimated S&P 500 Energy Sector’s 14.93 P/E. Without regulatory obstacles that President Trump removed with his early executive orders (EOs), Enbridge’s diversified portfolio is even more resilient against all economic and commodity cycles.
Enbridge’s business model is structured around LP (Liquids Pipelines), GTM (Gas Transmission and Midstream) and GDS (Gas Distribution and Storage). Image credit: Enbridge.
If higher rates keep up for longer, renewables will face tougher times as they require favorable financing. This is not the case with Enbridge’s traditionally resilient portfolio, having only a small portion of renewables.
With predictable cash flows, the company has achieved a 9% dividend CAGR between 1995 and 2025. At the end of 2024, Enbridge further boosted dividend per share payouts by 3%, giving shareholders a quarterly dividend of $0.9425.
If this trend continues, and it likely will, ENB stock represents another way to offset inflation just through dividend yield alone. When it comes to ENB price targets, its present price of $44.87 is still under the average price target of $47.20 per share. The bottom estimate is close at $42.87 while the ceiling target for ENB stock is $53.73 per share.
At the moment, only 1 analyst recommends selling ENB shares. 9 analysts view them as a buy opportunity at this price level, while 11 think investors should keep holding ENB stock.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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