Utilities and metals tend to fare well during the week of FOMC meetings
Once the dust clears from today's testimony of fired FBI Director
James Comey, as well as the snap election in the U.K., Wall Street will once again zero in on the Fed. The Federal Open Market Committee (FOMC) is expected to raise interest rates at its June meeting next week, and stock traders will no doubt nitpick Fed Chair Janet Yellen's post-meeting press conference for clues to the next rate hike. Against this backdrop, we took a look at how the
S&P 500 Index (SPX) tends to react during Fed weeks, and outlined the best stocks and exchange-traded funds (ETFs) to own -- and which ones have attractive options right now.
S&P Slightly Underperforms During Fed Weeks
Going back to 2015, the SPX has averaged a 0.10% gain during Fed meeting weeks, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Further, the S&P has ended Fed weeks higher 53% of the time. That's just slightly beneath the index's anytime weekly stats since 2015, with the SPX averaging a gain of 0.13%, with a positive rate of 55%.
However, as Schaeffer's Senior V.P. of Research Todd Salamone recently observed, the SPX had trouble trading above its
Fed rate-hike day close in the second half of March and throughout April. "This price behavior was similar to the price action following rate hikes in December 2015 and December 2016," he noted. "In fact, it was not until July 2016 that the SPX finally made a sustained move above the Dec. 16, 2015, FOMC day close of 2,073.07 -- although the mid-December 2016 rate-hike day closing level proved to be more of a month-long hesitation point until the inauguration of Donald Trump."
25 Best Stocks to Own During Fed Weeks
Meanwhile, below are the 25 best stocks and ETFs to own during a Fed week, using historical data since 2015. Utilities stocks -- often seen as "defensive" stocks -- dominate the list, led by
PPL Corp (NYSE:PPL). The shares of PPL boast the best win rate of any S&P member during Fed weeks, ending the week higher 84% of the time. Further, PPL stock has averaged an impressive gain of nearly 2% during these weeks -- the second-best on the list. The utility stock has been in rally mode since the U.S. presidential election, and notched a post-financial crisis high of $40.20 on Tuesday.
Utilities, Gold & Silver Top Best ETFs to Own Next Week
As to the best ETFs to own during the week of a Fed meeting, it's no surprise to find the
Utilities Select Sector SPDR Fund (XLU) near the top of the list. Shares of XLU have ended the week higher 68% of the time, going back to 2015, with an average weekly return of 0.89%. However, metal-based ETFs tend to perform even better, likely because tangible assets are often seen as "safe haven" investments and inflationary hedges.
The
VanEck Vectors Gold Miners ETF (GDX), in fact, has fared the best of any exchange-traded fund during Fed weeks, hands-down. GDX has ended the week positive 68% of the time since 2015, with a stellar average return of 2.53%. The shares have surged nearly 11% since their early May lows, and are on pace to end atop their 10-month moving average for the first time since October.
What's more, GDX's short-term options are a relative bargain right now, for traders expecting another burst higher. The fund's Schaeffer's Volatility Index (SVI) of 32% is higher than just 22% of all other readings from the past year, suggesting GDX's
near-term options are attractively priced, from a historical volatility perspective. Further, GDX's Schaeffer's Volatility Scorecard (SVS) of 82 indicates the fund has exceeded option buyers' volatility expectations during the past year.
Likewise, the
SPDR Gold Trust (GLD) is also near the top of the list, with a win rate of 68% and an average Fed-week gain of 0.91%. But it's the
iShares Silver Trust (SLV) that takes the cake, as far as win rate. The silver-based fund has ended Fed weeks higher 79% of the time since 2015 -- in a class of its own -- with an average gain of 1.31%. Further, wannabe short-term call buyers can scoop up SLV options at a discount, as the ETF's SVI of 19% is lower than 90% of all other readings from the past 12 months, and SLV sports an SVS of 97 -- a major selling point for premium buyers.
