These stocks tend to outperform after Fed rate hikes
The Federal Open Market Committee (FOMC) kicks off its two-day policy meeting today, with the central bank widely expected to announce a rate hike tomorrow. Against this backdrop, we decided to take a look at some of the best stocks to own when the Fed hikes interest rates, with semiconductor stock Advanced Micro Devices, Inc. (NASDAQ:AMD) and payment technology concern PayPal Holdings Inc (NASDAQ:PYPL) topping the list.
AMD Stock Could Shine This Week
Since 2015, the Federal Reserve has hiked interest rates four times, the last coming in June. If past is prologue, AMD stock could shine in the next week, per data from Schaeffer's Senior Quantitative Analyst Rocky White. The security has been higher a week after the last four rate hikes 100% of the time, averaging a healthy gain of 9.94%! That's hands-down the best average return of all S&P 500 Index (SPX) stocks.
AMD stock has struggled since its last test of the $14-$15 area, giving up more than 18% in just the past three months. It's been a rough few weeks for several chip stocks, especially, and Advanced Micro Devices shares have underperformed the broader SPX by more than 30 percentage points in the past two months. The equity was last seen clinging to support in the $10 region, down 1.7% on the day, and 11.8% year-to-date. However, another 9.94% surge in the next week would place AMD back above $11.
Options traders looking to speculate on a short-term rise can do so at a relative bargain, too. Advanced Micro Devices stock sports a Schaeffer's Volatility Index (SVI) of 44% -- higher than just 6% of all others from the past year, pointing to relatively muted short-term volatility expectations priced in.
PYPL Among Best Stocks a Month After Rate Hikes
PayPal stock, meanwhile, also has a 100% win rate -- as does every stock on the list above -- averaging a one-week gain of 2.39% after a rate hike. PYPL stock also tends to shine a month after a Fed rate hike, though its returns aren't quite as impressive. The equity has been higher 75% of the time a month out, with an average gain of 1.37%. Just three S&P 500 stocks boast 100% win rates one month following a rate hike.
Since notching an all-time high of $79.28 on Nov. 27 -- not long after PayPal issued upbeat guidance -- the shares have taken a breather, pulling back to test their ascending 80-day moving average. From a longer-term perspective, PYPL stock has been on fire in 2017, advancing more than 87% to trade at $73.94 -- up 0.9% today. From the equity's current perch, another 2.39% rally in the next week would put PYPL around $75.71 -- back above the 30-day moving average that's ushered the shares higher for most of this year.
J.P. Morgan Securities expects more upside, too, lifting its price target on the security to $81 from $69 this morning. The brokerage firm also reiterated an "overweight" rating on the shares, and said PayPal should be one of the industry's fastest earnings-per-share growers next year.