Ditch These Stocks Before a December Rate Hike

Target and L Brands stocks have historically struggled after rate hikes

Dec 19, 2018 at 10:38 AM
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Despite public pleading from President Donald Trump and recent dovish commentary from Fed Chair Jerome Powell and company, the Fed is widely expected to announce another rate hike this afternoon. Since the current tightening cycle began in 2015, rate hikes have preceded weaker-than-usual price action for the broader S&P 500 Index (SPX). What's more, below we've listed the individual stocks that tend to struggle the most after Fed rate hikes, including a pair of retailers: Target Corporation (NYSE:TGT) and L Brands Inc (NYSE:LB).

Below are the 25 worst stocks to own a week after Fed rate hikes, looking at historical data since 2015. Along with several financial names, TGT and LB made the list. Both equities have averaged a one-week loss of over 2.3%, and have moved higher just 13% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

worst stocks after rate hike

Target stock suffered a brutal bear gap on Nov. 20, after the retailer's big earnings whiff.  Since then, things haven't improved much for TGT shares. A rebound attempt quickly stalled in the $72 area -- home to its 320-day moving average -- and the shares went on to touch a new annual low of $63.76 on Monday, Dec. 17. The equity is now trading in the $65.72 vicinity, near its year-to-date breakeven.

TGT stock chart dec 19

Despite Target's struggles both on and off the charts, option buyers have been upping the bullish ante. 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 of 2.42 is in the 90th percentile of its annual range. Should TGT extend its recent slide, an unwinding of optimism in the options arena could put added pressure on the retail stock.

Victoria's Secret parent L Brands, meanwhile, also suffered a post-earnings bear gap in November, with the retailer cutting its dividend. Subsequent rebound attempts lost steam in the face of LB's 200-day moving average, with the shares last seen trading around $29.14. From a longer-term perspective, LB has surrendered more than half its value in 2018, and has spent the bulk of the year struggling to overtake the $38 region.

LB stock chart dec 19

Nevertheless, near-term options traders have rarely been more call-heavy on the retailer in the past year. This, per the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.53, which registers in the 5th percentile of its annual range. The overhead January 2019 30 strike is home to a noteworthy 8,723 calls outstanding, which could translate into an added options-related speed bump in the short term.


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