Interest rates and the FTSE 100: how are markets affected?
Global markets shifted again this week as the US Federal Reserve cut interest rates by 25 basis points. The move wasnât exactly unexpected, but it still sent ripples across the FTSE 100. While the Fed chose to ease, the Bank of England has made the decision to keep rates steady, creating a contrasting backdrop for UK-listed companies.
The effect was already visible in early morning trading on Thursday, 18 September. Fashion retailers Next and JD Sports were among the biggest casualties, sliding 5% and 2% respectively. With borrowing costs still relatively high in the UK, discretionary spending looks under pressure, which doesnât help retailers relying on consumer confidence.
Fresnillo also dipped after a run of strong gains, showing how sensitive commodities can be to interest rate expectations.
But it wasnât all gloom. Some of the more defensive names surged ahead. RELX gained 3.5% in a single session, with Halma and Experian both climbing around 2%. These types of firms often attract investors looking for consistent revenue streams when markets feel uncertain.
That brings me to one stock I think is worth weighing up in the context of shifting interest rates: Intermediate Capital Group (LSE: ICG).
A focus on private markets
ICG is a specialist asset manager that focuses on private markets. It provides both debt and equity capital, acting as an alternative to traditional banks. In simple terms, it helps companies raise money in ways they might not be able to through conventional lending. This business model benefits when global borrowing costs become more favourable, as capital can flow more freely into private markets.
The group has been enjoying strong fundraising levels and assets under management (AUM) growth. Revenue and earnings have consistently beaten expectations in recent quarters, which has helped support a share price already up 11.5% this year.
Despite that rise, the stock doesnât look expensive compared to peers. With a forward price-to-earnings (P/E) ratio of around 14, itâs broadly in line with the industry average.
One of the groupâs most appealing traits for income-focused investors is its dividend record. The current yield sits at 3.7% and the payout ratio is a modest 52.7%. Payments are well covered by earnings and the firm has delivered more than two decades of uninterrupted dividends.
Thatâs the sort of track record many FTSE 100 investors like to check out when thinking about steady income streams.
My verdict
Intermediate Capital Group is the type of globally diverse business that is typically well-positioned to benefit from favourable rate changes.
Still, there are risks worth considering. Because ICGâs business revolves around private markets, itâs inherently exposed to cycles in investor sentiment and credit availability. If conditions tighten or fundraising slows, growth could stall. Thereâs also the possibility that rising defaults or underperforming investments could pressure profitability.
Even with strong margins today, investors should weigh up the fact that past resilience doesnât guarantee future stability.
Still, I think itâs an interesting stock to consider in the FTSE 100, particularly as it combines consistent dividends with the potential to benefit from looser global financial conditions.
With the Fed easing and the Bank of England holding steady, the tug of war in interest rates might just play into the hands of alternative asset managers.
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Mark Hartley has positions in JD Sports Fashion and RELX. The Motley Fool UK has recommended Experian Plc, Fresnillo Plc, Halma Plc, and RELX. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
