Who says higher interest rates are bad for S&P 500 stocks? A select group is thriving even as the Federal Reserve hikes rates.
Seven S&P 500 stocks — including First Solar, Constellation Energy and Eli Lilly — jumped 90% or more since the Fed first jacked up interest rates in this latest push starting in March 2022, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence, MarketSmith and Bankrate.com.
Talk about outperformers. These stocks rose an average of 104% since the Fed started raising rates. That blows away the S&P 500's 3.5% rise in that time.
What's more, they're all showing strength as the market worries that more rates increases are coming. The seven S&P 500 stocks are up an average of 52% just this year, easily topping the S&P 500's 12.9% rise.
"Projections indicate one more rate hike by the end of the year, consistent with the previous message from June," said Ned Davis Research's Joseph Kalish.
Fed Hikes Hinder S&P 500
Investors are enduring one of the steepest periods of rising short-term interest rates in U.S. history. But savvy stock pickers are still finding big gains.
The Fed jacked up interest rates 11 times since March 2022, says Bankrate.com. That's taken short-term rates from a target of 0.25%-0.50% up to 5.25%-5.50%. Rising rates have taken a toll on borrowers suddenly facing higher costs to borrow.
As a result, the S&P 500 is underperforming what it normally does in that time period. But there are exceptions. Big ones.
Loving The Fed's Hikes: S&P 500 Champ First Solar
If higher interest rates are a headwind for S&P 500 stocks, that doesn't seem to apply to First Solar.
Shares of the maker of alternative energy products are up nearly 132% since the Fed started hiking rates. That makes it the top S&P 500 during the Fed's hikes. And the rally makes total sense. In some ways, solar power is a beneficiary of price inflation in traditional energy sources. Higher oil prices make solar more competitive. Additionally, massive government incentives encourage green energy.
The result is explosive profit growth. Analysts think the company will earn an adjusted $7.91 a share this year. That's up from a loss of $2.79 a share in 2022.
Similarly, green-minded Constellation Energy is a big winner, too. Shares of the Baltimore-based utility are up 116% since the Fed started boosting rates. The company says that 90% of the power it generated in 2022 was carbon free.
And analysts think the efforts will start paying off. Profit in 2024 is expected to rise more than 25%. That's well above Constellation's expected 15% profit jump in 2023.
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Not Just Green Winners
It's not just S&P 500 companies exposed to green energy that are thriving despite higher interest rates.
Breakthrough treatments for neurological and other conditions turned Eli Lilly into a dynamo despite the Fed. Shares are up 104% since the hikes started. Profits are rising rapidly, too.
Marathon Petroleum is up more than 102% as the company benefits from energy inflation. Ironically, the higher interest rates are partially in response to such inflation. And don't forget the AI revolution, which hit a fever pitch as the Fed raised rates. AI king Nvidia has seen shares gain 93% since the first rate hike.
It's anyone's guess when the Fed will stop raising rates. Ned Davis' Kalish thinks one more is on the way soon. "Dot plot shows one more rate hike this year and fewer rate cuts next year. December would be more likely than November in our view."
But some S&P 500 investors found ways to make money no matter what the Fed does.
Top S&P 500 Stocks Since Fed Hikes
Starting from March 2022 hike
| Company | Ticker | % chg since hikes | Sector |
|---|---|---|---|
| First Solar | 130.9% | Information Technology | |
| Constellation Energy | 115.8 | Utilities | |
| Eli Lilly | 104.5 | Health Care | |
| Marathon Petroleum | 101.9 | Energy | |
| Nvidia | 92.3 | Information Technology | |
| Lamb Weston | 91.6 | Consumer Staples | |
| Fair Isaac | 90.9 | Information Technology |
