Rate hikes and rate cuts

FED started raising interest rates from March 2022 to curb inflation. Rates were near zero, and the hikes bring it to above 5% over a period of 1.5 years.

During this period, banks enjoyed increased profits since they can loan out money for more interest earnings vs what they pay to depositors. This helped the 3 local banks that have large savings deposits. 

At same time, REITs suffered as they had to set aside more money to cover higher intest payments for their loans as they refinance during this period, moving money to the banks coffers instead of paying out as dividends to unit holders. 

So Uncle think its always good to balance a portfolio with REITs and Banks. When rates are high, dividends from REITs drop because the money goes to Banks. But dividends from banks goes up, so this goes back to you as investor.

I expect banks to lose some earnings as rates get cut gradually over next 1.5-2 years, while REITs will start to recover as they refinance loans with lower rates.

But I don't think rates will go back to pre-2022 days of near zero. So REITs won't go back to previous highs, while banks won't go back to earlier lower prices. But they will balance out. 

End of day, as long as the dividends continue to come out from the portfolio at 5% rate, uncle very happy liao.