Stocks to Buy Before a Fed Rate Hike

AMD and NKTR stocks tend to outperform after Fed meetings

by Andrea Kramer

Published on Dec 18, 2018 at 2:37 PM
Updated on Dec 19, 2018 at 9:27 AM

The Federal Open Market Committee (FOMC) kicked off its two-day policy-setting meeting today, with the central bank widely expected to announce another rate hike tomorrow afternoon -- despite protests from President Donald Trump and recently dovish Fed comments. While the S&P 500 Index (SPX) tends to struggle the month after Fed rate hikes, several stocks could enjoy a lift, if recent history is any indicator, including chip concern Advanced Micro Devices, Inc. (NASDAQ:AMD) and healthcare issue Nektar Therapeutics (NASDAQ:NKTR).

Below are the 25 best stocks to own after Fed meetings since 2015 (when the current tightening cycle began), whether or not the central bank raises rates or stands pat. AMD is near the top of the list, averaging a 1.77% return in the subsequent week -- tied for second-best of all SPX stocks -- and moving higher 68% of the time. NKTR stock has averaged the best one-week gain after Fed meetings, up 2.83% with a 65% win rate, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

best stocks after fed meetings

Those gains only intensify following a Fed rate hike. Below are the 25 best-performing stocks after rate hikes since 2015. AMD stock went on to average a one-week gain of more than 3.13%, ending higher 75% of the time. That's second only to NKTR shares, which averaged a one-week gain of 6.89%, also with a win rate of 75%.

best stocks after fed rate hikes

Advanced Micro Devices stock has slipped more than 40% since its mid-September 12-year highs north of $34. The shares are currently trading around $19.59, and remain 90% higher year-to-date. What's more, AMD is back within one standard deviation of its 200-day moving average, after a lengthy stretch above this trendline. There have been four similar pullbacks in the past couple of years, after which the semiconductor concern was higher one month later 100% of the time, with an average gain of more than 10.5%.

AMD stock chart dec 18

Traders looking to speculate on AMD's short-term trajectory should consider doing so with options. The stock sports a Schaeffer's Volatility Scorecard (SVS) of 99 out of a possible 100, indicating the shares have handily exceeded options traders' volatility expectations in the past year.

Nektar Therapeutics stock has surrendered more than two-thirds of its value since peaking above $111 in March, last seen trading around $35.65. The equity suffered a big bear gap in early June, due to poorly received data on the company's experimental cancer treatment, NKTR-214, with Bristol-Myers Squibb's (BMY) Opdivo. Since then, NKTR has struggled to fill that gap, and touched an annual low of $33.50 on Nov. 9. Even relatively well-received combination drug data last month failed to propel the shares out of their recent range.

NKTR stock chart dec 18

Another post-Fed breakout could catch a few shorts off-guard. Short interest spiked more than 22% in the past two reporting periods, and now represents 12.4% of the equity's total available float.

Again, traders looking to speculate on the drug stock's near-term momentum should consider options. Not only is Nektar's SVS at a lofty 97, its Schaeffer's Volatility Index (SVI) of 67% is in just the 18th percentile of its annual range. In simpler terms, short-term options are pricing in relatively tame volatility expectations for NKTR at the moment.

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