The likelihood that the Federal Open Market Committee (FOMC) will issue another rate hike in June is now all but assured at this point. But as I told you in Monday’s article, that doesn’t mean it’s time to panic.
According to the minutes from its meeting held on May 1-2, the FOMC is ready to pull the trigger (again) on its goal towards normalizing monetary policy.
"Most participants judged that if incoming information broadly confirmed their economic outlook, it would likely soon be appropriate for the FOMC to take another step in removing policy accommodation,” read the minutes. If you’re familiar with previous FOMC language, particularly its unabashed effort to not rattle global markets, this is as close as you’ll ever get to them saying a rate hike in June is guaranteed.
Beyond what’s broadly expected to be a 25 basis-point increase in June, most experts, including the majority of FOMC officials, expect at least two or three more rate increases before the year is over. This means September and December could be done deals as well, especially given the FOMC’s willingness to tolerate a 2%-plus inflation environment.
Still, despite all of this advance notice and time to maneuver, investors can’t help but to remain fixated on what rising interest rates would mean for their portfolios.
On Monday I gave you Goldman Sachs (GS), Microsoft (MSFT), Visa (V), Apple (AAPL), and JPMorgan (JPM) as stocks that often become great investments when interest rates rise. Combined, they have returned, on averaged, 12.1% over the past ten years during a three-month period when interest rates rose.
Conversely, we’re now going to discuss five stocks to avoid. Take a look at this chart:
The first on the list is General Electric (GE). We know GE, which has seen its stock plunge 40% in five years, has been dealing with a several challenges for some time. Interest rate increases, meanwhile, hasn’t helped. The company has averaged 1% decline during the same time span as discussed above. While the 1% is far from earth-shattering, it serves as one more reason to avoid GE in this environment, despite the appeal of its cheap stock price.
Walmart, meanwhile, gained only 0.34% in the first three months when interest rates rise. While I will agree that any gain is better than a loss, the issue is that when it's compared to the 12% gain delivered by these Dow counterparts, it might has well have been. American Express (AXP) comes next on the list with a gain of 1.71%, while Coca Cola (KO) and Procter & Gamble (PG) round out the five with respective returns of 1.81% and 2.32%. All five stocks underperform the Dow’s 5% averages return during that same span.