A Higher-for-Longer Fed Cuts Both Ways for S&P Global

S&P Global (NYSE: SPGI), one of the world's largest financial data companies, is often considered an evergreen stock. It provides financial data, credit ratings, and analytics services to 80% of the Fortune 500 companies. It's also raised its dividend annually for 53 consecutive years, making it a Dividend King that has maintained that streak for at least 50 years.

Yet S&P Global isn't completely immune to interest rate swings. Let's see how higher interest rates could create both tailwinds and headwinds for its core businesses.

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The tailwinds and headwinds

Higher interest rates usually throttle economic growth and drive up borrowing costs for corporations. That pressure discourages companies from issuing new debt at higher rates, thereby reducing demand for S&P Global's credit rating services.

However, that market volatility and macroeconomic uncertainty will also fuel more demand for its subscription-based market intelligence and commodity insights services. Its S&P Dow Jones Indices division also generates revenue through asset-linked fees (such as ETFs tracking the S&P 500), and those revenues will generally rise faster in volatile, heavily traded markets.

Higher interest rates could also drive more investors toward private credit and alternative assets. S&P Global has been preparing for that shift by launching new services for pricing and evaluating illiquid private assets, and those newer businesses could thrive in a messier market.

Will S&P Global weather the storm?

S&P Global generates most of its revenue from subscription-based services, but its credit rating services operate at much higher margins. So even though its subscription businesses should thrive regardless of the interest rate swings, its credit rating business -- which drives more of its profit growth -- could suffer a near-term slowdown if interest rates stay elevated.

That pressure, along with concerns about AI-powered competitors challenging its subscription services, caused S&P Global's stock to decline more than 20% year-to-date. However, analysts still expect its EPS to rise 10% in 2026 and 13% in 2027 -- and its stock looks reasonably valued at 20 times forward earnings. Its forward yield of less than 1% won't impress any income investors, but its low payout ratio of 24% gives it plenty of room for future dividend hikes.

Elevated interest rates and AI challenges made S&P Global less appealing this year, but it's still a rock-solid long-term investment. If you plan to hold the stock for at least a few years instead of a few quarters, it's still worth buying today regardless of what the Fed does this year.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global. The Motley Fool has a disclosure policy.