Which type of company’s stock is most affected by interest rate changes?

Utility companies' stocks are the most affected by interest rate changes primarily because they are highly leveraged and often carry significant amounts of debt to finance their capital-intensive operations, such as building and maintaining infrastructure for electric, gas, and water services. When interest rates rise, the cost of borrowing increases for these companies, which can lead to higher operational costs and diminished profit margins.

Moreover, utility stocks are typically viewed as income investments due to their relatively stable dividends. When interest rates increase, new bonds and other fixed-income securities may offer more attractive yields, leading investors to reevaluate their portfolios. This can drive down the prices of utility stocks as investors may shift their capital towards fixed-income securities that now provide better returns.

Conversely, industries such as pharmaceuticals, construction, and beverages may also experience some level of impact from interest rate changes, but they do not generally rely as heavily on debt financing or the income investment appeal that characterizes utility companies. Therefore, utility stocks are the most sensitive to interest rate fluctuations.