Stop fearing what rising interest rates might mean for your S&P 500 stocks. In fact, many thrive when rates move higher if you look in the right places.
Nine stocks in the S&P 500 — including information-technology giants like Advanced Micro Devices and Apple as well as health care firm Bio-Techne — have powered higher when interest rates entered periods of multiple Fed rate hikes since 1990, says an Investor's Business Daily analysis of data from LPL Financial and S&P Global Market Intelligence.
All these stocks topped the S&P 500 during rate-hiking campaigns since 1990. And they rocketed 70% or higher, on average, during these periods.
And this underscores a fact missed by many investors. S&P 500 stocks actually do pretty well, even as rates rise. The S&P 500 itself rose more than 20% during the last rate hiking period from 2015 through 2018. And it's risen nearly 10%, on average, in rate hiking periods since 1990. That's key to know as the Federal Reserve hikes short-term interest rates for the first time since 2018.
"Investors need to remember that Fed rate hikes usually happen near the middle of the economic cycle, with potentially years left of gains in stocks and the economy," said LPL Financial Chief Market Strategist Ryan Detrick.
How The S&P 500 Does When Rates Rise
Many investors assume periods of Fed rates hikes are deadly for the S&P 500. But data shows the opposite is true.
The S&P 500 gained 0.7%, on average, in the three months following initial rate hikes since 1983, LPL says. Sometimes, immediate reactions are even stronger, such as when the S&P 500 rose nearly 14% following the 0.25% hike in March 1997.
And good feelings intensify longer term most of the time. The S&P 500 added 6.1% and 9.2%, respectively, in the six months and one year following initial rate hikes since 1983. Of course, that's not always true. The S&P 500 slipped nearly 12% in the 12 months following the first rate hike in April 1987.
But if you're in the right place, gains can be much larger too. The S&P 500 rose nearly 40% in the 12 months following the first hike in February 1994.
What kinds of S&P 500 stocks, though, tend to do best? S&P 500 technology.
| Date of first rate hike | Size of first hike | S&P 500 next 3 months | Next 6 months S&P 500 | S&P 500 next 12 months |
|---|---|---|---|---|
| 8/8/1983 | 0.5% | 2.0% | -0.7% | 2.1% |
| 4/1/1987 | 0.3% | 3.6% | 10.1% | -11.7% |
| 5/11/1988 | 0.5% | 3.4% | 8.6% | 20.7% |
| 2/4/1994 | 0.3% | -5.9% | -2.5% | 2.4% |
| 3/25/1997 | 0.3% | 13.6% | 20.6% | 39.6% |
| 6/30/1999 | 0.3% | -7.6% | 6.6% | 6.0% |
| 6/30/2004 | 0.3% | -2.3% | 6.4% | 5.2% |
| 12/16/2015 | 0.3% | -1.1% | 0.1% | 9.1% |
| Average | 0.7% | 6.1% | 9.2% |
Source: LPL Financial
Finding Top S&P 500 Stocks During Rising Rates
S&P 500 technology stocks tend to thrive most when rates are rising. That's interesting as many are among the worst hit during the market's sell-off this year. Seven of the nine top S&P 500 stocks during periods of rising rates are in tech.
Take computer chipmaker Advanced Micro Devices. It's off more than 20% this year, partly on fears of what higher interest rates might do to its business.
And yet, it's the top-performing S&P 500 stock in the four most recent rate hiking cycles. It has jumped an average of 277% during each of those periods of rising rates. Shares of AMD soared more than 600% during the last rate hiking period that started in December 2015. To put that into perspective, the S&P 500 rose 9.9%, on average, during those periods.
Apple, too, is a stellar performer when rates are rising. Shares jumped an average of 114% during continuous rate hiking periods from 1990. Most recently, it jumped more than 44.5% during the last rate hiking cycle, while the S&P 500 rose 20.9%. Shares, though, are down more than 10% this year.
But winners aren't just in the technology sector. Well-managed medical supply company Bio-Techne jumped more than 70%, on average, in the past rate hiking periods since 1990. It really took off, jumping more than 195%, during the rate hiking period kicked off in 1999.
So, don't fall into the trap of selling S&P 500 going into higher rates. "The bottom line is rate hikes usually aren't bearish events, and we don't expect this cycle to be any different," LPL's Detrick said.
Top S&P 500 Stocks As Rates Soar
Outperformed the S&P 500 in all four past rate hiking periods and gained 70% or more
| Company | Symbol | YTD stock % ch. | Stock average gain during rate hikes* | Sector |
|---|---|---|---|---|
| Advanced Micro Devices | -20.2% | 277.4% | Information Technology | |
| Apple | -10.9% | 113.7% | Information Technology | |
| Trimble | -22.6% | 93.6% | Information Technology | |
| Adobe | -22.5% | 93.2% | Information Technology | |
| Corning | -0.6% | 80.9% | Information Technology | |
| Amphenol | -14.5% | 73.9% | Information Technology | |
| Lam Research | -29.0% | 72.3% | Information Technology | |
| Bio-Techne | -19.0% | 71.8% | Health Care |
