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Investors Business Daily
Investors Business Daily

7 Ways Investors Cash In On Powell's Crazy Rate Hikes

Soaring interest rates have pounded most S&P 500 stocks. But a handful are thriving anyway — despite efforts by Fed chief Jay Powell's crusade to slow things down.

Seven stocks in the S&P 500, including First Solar, consumer staple maker Lamb Weston and consumer discretionary play Las Vegas Sands, jumped 50% or more since the Fed started hiking rates about a year ago in March 2022, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. All told, these stocks added more than $75 billion to investor's portfolios as most other stocks dropped.

And that's quite a feat. The S&P 500 at large has suffocated mightily under the weight of the Fed's insane 1,800% hike of short-term interest rates in just a year. Investors lost $2.2 trillion in market value in S&P 500 stocks during the time the Fed started jacking up rates.

"Fewer loans and tighter credit mean the supply of money — the pulse of the economy's circulatory system — is slowing. In fact, for the first time in over a decade, effective money growth was negative last year," said Jack Ablin, strategist at Cresset Capital Management.

Powell Goes Full-Volcker

Making money amid soaring interest rates is tough. But it's possible.

And that's despite the speed of this Fed's rate-hiking moves being more manic than most investors have seen in their lifetimes. Rates haven't jumped this fast since former Fed head Paul Volcker's time in the 1980s, Ablin says. No wonder most S&P 500 stocks reacted so poorly. More than 60% of S&P 500 stocks are down from where they were when the hikes began.

"Over the last 12 months the Fed has pushed up the overnight lending rate nine times, from 0.25% to 5%, representing the steepest rate rise since the Volcker years," said Ablin.

What's a winner look like in this environment?

Look at First Solar, a seller of solar panels for homes. Shares are up 194% from the time the Fed began hiking rates. The company is a big beneficiary from the government's push to encourage green energy. And it's not simply speculation. The company is on pace to make $7.12 a share on an adjusted basis this year, up from a loss in 2022. And analysts seen profit growing in each of the next four years at least. Investors are nearly $15 billion richer thanks to the stock's rally during rate hikes.

Gambling And Potatoes Pay Off

And it's not just a tech rally. Lamb Weston sells frozen potato products. But it's scoring while rates rise, too.

Shares of the company nearly doubled in the roughly one year since the Fed started jacking up rates. That move alone put more than $7 billion into investors' portfolios. And again, it's a growth story. Analysts think Lamb Weston's adjusted profit per share will hit $3.87 this year, which is up more than 86% from 2022.

And while investors might not feel like speculating on stocks like they did in 2021 when money isn't nearly free anymore, they're looking to plunk down their chips at the table in Vegas. Shares of Las Vegas Sands are up 72% since the start of the rate hikes. And it's the same pattern. Analysts think the company will make $1.39 a share in 2023, up from a loss in 2022. And in 2024, profits are seen jumping another 93%.

Just Don't Get Near Regional Banks

That's not to belittle the pain the higher rates have inflicted on some areas of the S&P 500. Hurt most? Regional banks.

Half of the 10 worst S&P 500 stocks since rates started moving higher are regional banks. That includes First Republic Bank, where shares dropped 92%. But even financials on more solid footing have gotten pounded, too. KeyCorp has lost half its value.

"The height and pitch of the Powell's rate hikes have left banks, most notably regional banks, scrambling for deposits," Ablin says. "Depositors have collectively withdrawn more than $600 billion from banks since the Fed's tightening program began."

But Ablin thinks the frenzied rate increases are about done. He's calling for the Fed to hike rates just once more in early May.

"Unless inflation spirals unexpectedly higher, we believe the next rate hike will be the Fed's last," he said.

Biggest S&P 500 Winners During Fed' Rate Hikes

Gains from March 15, 2022 start of latest rate-hiking campaign

Company Ticker % ch. during rate hikes Market value gained ($ billions) Sector
First Solar FSLR 194.2% $14.9 Information Technology
Lamb Weston LW 99.4% 7.2 Consumer Staples
Las Vegas Sands LVS 72.0% 1.7 Consumer Discretionary
Marathon Petroleum MPC 65.9% 1.3 Energy
Wynn Resorts WYNN 60.1% 4.3 Consumer Discretionary
Steel Dynamics STLD 52.0% 4.9 Materials
ON Semiconductor ON 50.5% 11,720 Information Technology
Sources: IBD, S&P Global Market Intelligence from March 15, 2022

Follow Matt Krantz on Twitter @mattkrantz

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