This Sector Could Move After the Fed Meeting

Utilities stocks could move as traders analyze the Fed's policy statement

Jul 26, 2017 at 8:46 AM
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The Federal Open Market Committee (FOMC) kicks off its two-day policy meeting today, and will announce its policy decision tomorrow afternoon. While Wall Street's expectations for a July rate hike are slim to none, especially in the wake of recently dovish comments from Fed Chair Janet Yellen, a handful of stocks (not to mention this silver ETF) could move higher this week, if history is any indicator.

Notably, the central bank's language regarding future rate hikes could move stocks in the utilities sector, including PPL Corp (NYSE:PPL) and SCANA Corporation (NYSE:SCG). Below, we'll take a look at the 25 best stocks to own during Fed weeks -- including PPL and SCG. 

25 Best Stocks for Fed Weeks

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, the top four stocks to own during Fed weeks (sorted by percent positive and average return) are out of the utilities sector. PPL stock leads the pack, boasting the best win rate of all S&P 500 Index (SPX) stocks, ending Fed weeks on the plus side 85% of the time going back to 2015. Further PPL has averaged a weekly return of 1.93%. SCG has fared similarly well, boasting a healthy average Fed-week return of 1.98%, and ending the week higher 80% of the time.

best stocks to buy fed meeting weeks

PPL, SCG Stocks Lead the Pack

Since touching an eight-year high of $40.20 in early June, the shares of PPL have taken a bit of a breather. The stock is now testing support in the $38 region, which represents a 23.6% Fibonacci retracement of PPL's rally from its 2016 lows to the aforementioned high.

Should the shares once again outperform this week -- they're down 1.5% so far -- or should PPL Corp report stronger-than-expected earnings next week, there's plenty of room for upgrades to lure more buyers. Currently, just two of nine analysts offer up "buy" or better ratings on PPL stock.

On the other hand, SCG stock has been in a channel of lower highs and lows since hitting an all-time high north of $76 about a year ago. SCANA stock has dropped nearly 14% in the past 12 months, in fact, and was closed yesterday at $64.56 -- not far from last week's annual low of $63.18. So far this week, SCG shares are 1.6% lower, bucking the trend of Fed-week rallies.

As with PPL, SCANA Corporation will report quarterly earnings next week. Should the stock make a U-turn after the Fed announcement tomorrow, or should the firm report stronger-than-expected earnings, there's plenty of fuel for a short squeeze to help SCG shares break out of their downward channel. Short interest represents more than seven sessions' worth of pent-up buying demand, at SCG stock's average pace of trading.

Why the Fed's Forecast Could Be Key This Time Around

In any case, the Fed's statement on its outlook for the economy and future policy moves should be the key driver for equities across the board today, given that rates are widely expected to remain unchanged. Fed language that reinforces the relatively dovish attitude expressed by Fed Chair Janet Yellen in her recent congressional testimony should help give utilities a boost.

On the other hand, if the central bank takes a hawkish tone with its forecast, it could potentially undermine the typically bullish momentum for utilities stocks in the Fed-meeting aftermath. That's because higher rates will increase the companies' borrowing costs, and also reduce the appeal of the traditionally attractive dividend yields in the utilities sector.

For the record, PPL currently sports a dividend yield of 4.1%, with SCG close behind at 3.8%. The CBOE 10-Year Treasury Yield Index (TNX), meanwhile, has averaged 21.43 over the past year, equivalent to a 2.14% yield.

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