2 Stocks to Buy Before the Fed Rate Hike

While the S&P tends to struggle during Fed weeks, NKTR and NVDA usually bounce

by Andrea Kramer

Published on Jun 6, 2018 at 1:46 PM

The Federal Open Market Committee (FOMC) will hold its two-day policy meeting next week. The central bank is widely expected to announce a rate hike Wednesday afternoon, and while the S&P 500 Index (SPX) tends to struggle during Fed weeks -- and subsequently run into Fed Day resistance -- several stocks tend to rally after a rate hike. Among them are biopharmaceutical stock Nektar Therapeutics (NASDAQ:NKTR) and semiconductor concern Nvidia Corporation (NASDAQ:NVDA).

Below are the 25 best S&P 500 stocks to own after a Fed rate hike, per analysis from Schaeffer's Senior Quantitative Analyst Rocky White. The data looks back to 2015, and measures one-week performances after the past six rate increases from the central bank.

best stocks after fed rate hike

NKTR Rebound Could Continue After a Rate Hike

Nektar Therapeutics has been the No. 1 stock to own a week after a Fed rate hike. NKTR shares moved higher 83% of the time, and averaged a stellar one-week return of 9.33%.

Today, the healthcare stock is up an impressive 12.5% to trade at $62.94, though the catalyst is unclear. NKTR is set to end back atop its 200-day moving average, after breaching this trendline on Monday -- which was the equity's worst session in years following ugly data on the company's experimental cancer treatment, NKTR-214. Nektar shares are also back in the black on a year-to-date basis, and seem to have found support in the $50-$51 area -- home to a 61.8% Fibonacci retracement of the equity's rally from mid-2017 to its March 12 all-time high of $111.36. Another 9.33% pop from current levels would put the shares around $68.81.

NKTR stock chart

Should Nektar Therapeutics stock extend today's rebound and enjoy another post-rate-hike win, a short squeeze could add fuel to the fire. Short interest on NKTR surged 14.05% in the past two reporting periods, and now represents a nearly week's worth of pent-up buying demand, at the security's average pace of trading.

NVDA Stock Could Hit Higher Highs

Nvidia stock has moved higher the week after 67% of Fed rate hikes since 2015, averaging a gain of 2.44%. However, summer months in general tend to be volatile for NVDA shares, though the equity has ended the June-August period higher 70% of the time during the past 10 years.

NVDA rallied more than 12% in the month of May, with help from a blowout earnings report early in the month. After a brief consolidation in the $240-$250 area, the equity broke out again early this week, scoring an all-time high of $266.59 yesterday. Today, Nvidia shares have given back 0.7% to trade at $263.25. Another 2.44% bump from current levels would place the equity around $269.67 -- back in record-high territory.

nvda stock chart june 6

Today's breather may have been in the short-term cards for NVDA, as the stock's 14-day Relative Strength Index (RSI) hit 70 yesterday -- in overbought territory. Should the stock once again move higher after a rate hike next week, though, a round of upbeat analyst attention could be in store. Currently, 10 of 26 analysts following the chip stock maintain tepid "hold" or worse ratings.

Whether bullish or bearish, now is an opportune time for short-term traders to speculate on NVDA with options. The stock's Schaeffer's Volatility Index (SVI) of 27% sits in just the third percentile of its annual range, indicating relatively low volatility expectations are being priced into near-term contracts. Plus, the stock's Schaeffer's Volatility Scorecard (SVS) of 92 out of 100 indicates Nvidia has easily exceeded options traders' volatility expectations over the past 12 months.

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