This Food Stock Tends to Fall After Fed Rate Hikes

TSN is set to snap a long monthly losing streak, but today's rate hike could be a setback

Jun 13, 2018 at 1:40 PM
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It's been a rocky road for consumer staples stocks in 2018. Ugly guidance from Campbell Soup (CPB) and J.M. Smucker (SJM), not to mention concerns about Mexico tariffs, have weighed on the sector. Nevertheless, the Consumer Staples Select Sector SPDR Fund (XLP) is eyeing its best month since November, and Tyson Foods, Inc. (NYSE:TSN) stock is set to snap a six-month losing streak. However, TSN bulls may want to wait a minute before going long the chicken producer, as the shares have been among the worst to own after a Fed rate hike, historically.

The central bank is expected to announce a rate hike shortly. TSN has been among the 25 worst S&P 500 stocks to own after a Fed rate hike, per analysis from Schaeffer's Senior Quantitative Analyst Rocky White. Looking back to 2015 and measuring one-week performances after the past six rate increases, we find that Tyson Foods shares have never ended higher. Further, TSN has moved lower by 0.91%, on average, a week after Fed rate hikes.

After touching a record high of $84.65 in early December, TSN stock embarked on a series of lower highs and lows, marked by resistance at its 40-day moving average. The equity eventually bottomed in the $65 neighborhood in mid-May, and since then has rebounded roughly 10% -- breaking north of the aforementioned trendline. At last check, Tyson stock was trading down 0.4% at $71.16.

tsn stock chart june 13

Recent options buyers aren't buying the TSN bounce. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 2.06 stands in the 88th percentile of its annual range. In other words, Tyson option buyers have shown a healthier-than-usual appetite for bearish bets over bullish during the past two weeks.

Traders looking to speculate on TSN's short-term trajectory can scoop up options at a relative discount, too. The security's Schaeffer's Volatility Index (SVI) of 20% is in just the 11th percentile of its annual range, implying that Tyson Foods' near-term options are pricing in relatively low volatility expectations.


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