Worst Stocks to Own After a Fed Rate Hike

Bank of America and Bank of New York Mellon stocks tend to suffer after rate hikes

by Andrea Kramer

Published on Jun 8, 2018 at 11:11 AM

The Federal Open Market Committee (FOMC) is widely expected to announce a rate hike on Wednesday, June 13. We recently noted that the S&P 500 Index (SPX) tends to struggle during Fed weeks -- and subsequently run into Fed Day resistance -- but wanted to take it one step further by analyzing the worst individual S&P stocks to own after a rate hike. While higher interest rates are beneficial for banks, on the list were financial stocks Bank of America Corp (NYSE:BAC) and Bank of New York Mellon Corp (NYSE:BK).

Below are the 25 worst 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.

worst stocks after fed rate hike

BAC Peaked Before the Last Rate Hike

Bank of America stock has dropped an average of 3.27% the week after Fed rate hikes -- among the steepest pullbacks on our list. The equity was higher one week later just 17% of the time.

As alluded to earlier, rising interest rates are a boon for banks -- suggesting this could be a "buy the rumor, sell the news" situation. The Fed rarely surprises Wall Street, so these rate hikes could be priced into the shares well before the official policy announcement.

Echoing this theory, BAC stock touched its own post-financial-crisis high of $33.05 on March 12 -- not two weeks before the March 21 Fed rate hike. The day after, the shares gapped lower, and have subsequently spent the past few months bouncing along support in the $29 area -- around their year-to-date breakeven. At last check, BAC was down 0.7% to trade at $29.88.

BAC stock chart june 8

Recent options buyers haven't been banking on a BAC dip, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio stands at 5.56 -- in the 85th percentile of its annual range. In other words, options traders have initiated bullish bets over bearish at a much faster-than-usual pace during the past two weeks.

BK Stock Suffered Worst Day Since Brexit After March Rate Hike

Bank of New York Mellon stock, meanwhile, has yet to move higher the week after a rate hike, batting .000 since 2015. More specifically, BK shares pulled back an average of 2.87% after the Federal Reserve's last six rate hikes.

In fact, after the March rate hike, BK shares plummeted 4.7% on March 22 -- their worst session since the Brexit brouhaha of June 2016. Since then, however, the equity found footing in the $50 region, and has climbed back atop support at its 160-day moving average. Bank of New York Mellon stock was last seen trading at $57.14, down 0.9% on the day.

BK stock chart June 8

Although absolute volume tends to run light on BK options, traders have been scooping up puts over calls at a rapid-fire rate. The stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 7.10 is higher than 77% of all other readings from the past year. Perhaps Bank of New York traders are bracing for another post-Fed drop for the shares.

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