On May 3, the U.S. Federal Reserve (Fed) hinted that it now plans to pause its monetary tightening regime and assess its impact on the economy. The signal that rates may not go any higher came as the central bank approved its 10th interest rate increase in a little more than a year. This raised the federal funds rate to a target range of 5% to 5.25%, the highest level in 16 years. The announcement caused investors to start looking for the best stocks to buy after the Fed meeting.
The latest decision on interest rates by the Fed and the signals sent to markets are consequential for two reasons. First, interest rates have been ratcheted higher, making borrowing costs for businesses and consumers more expensive and potentially slowing the economy. Second, indications that interest rates are unlikely to go any higher in the near-term is cause for celebration among investors and traders.
On May 5, the Dow Jones Industrial Average rose more than 500 points. Where markets go from here though is not clear. Competing forces continue to gyrate stocks. However, the latest Fed moves are particularly good news for certain companies and their stockholders. Here are three Fed rate hike stocks set to soar after the May 2023 decision.
The stock of Apple (NASDAQ:AAPL) looks set to take-off after trading sideways for much of this year. On the day after the Fed signaled a likely pause in its interest rate hikes, Apple reported better-than-expected earnings, announced a new $90 billion stock buyback program and raised its quarterly dividend by 4% to 24 cents per share. AAPL stock was a big winner as markets rallied with investors hunting for stocks to buy after the Fed meeting, rising 5% in trading on May 5.
Additionally, APPL stock has been upgraded all over Wall Street both before and after the company’s latest earnings release. Many price targets on the stock now exceed $200 a share, suggesting at least 15% upside from current levels. In the past six months, Apple’s stock has rallied 25%. While decent, the gains in Apple’s share price have trailed the recovery seen in other tech stocks such as Nvidia (NASDAQ:NVDA) and Meta Platforms (NASDAQ:META), which have gained 100% or more in the same timeframe.
Looking ahead, it appears that Apple is once again ready to take center stage among large cap tech securities.
Fair Isaac (FICO)
Looking beyond tech, we have Fair Isaac (NYSE:FICO), which is familiar to most Americans as the company behind their credit score, or FICO score as it is also known. In a high interest rate environment such as the one we’re in now, credit scores become more important. Lenders scrutinize them to determine not only whether a consumer or business gets a loan, but the interest rate they pay on a loan. When interest rates are elevated, banks and other lenders rely more on FICO scores to assess and manage credit risks.
The recent failure of three U.S. regional banks has placed risk assessment under a microscope. Also, while the Fed has signaled that it may hold off on any further rate increases for now, it has given no indication that it plans to cut interest rates anytime soon. The federal funds rate could remain in its current range for some time, keeping a focus on credit scores. While stressful for companies and individuals, the current environment is very positive for Fair Isaac.
FICO stock has risen 109% in the last 12 months, including a 24% gain this year. While the increase has been impressive, the consensus view of analysts is that the stock has more room to run.
A pause in interest rate increases can only help Tesla (NASDAQ:TSLA). The electric vehicle maker has struggled mightily under the weight of higher rates over the last year, both as it tries to fund its continued expansion and sell its cars to consumers who are sensitive to the interest charged on auto loans. The impact of higher interest rates was reflected in Tesla’s most recent earnings, which missed targets in most segments. The company announced that its first-quarter net income fell 24% from a year earlier to $2.51 billion.
On an earnings call, Tesla CEO Elon Musk cited interest rates as an issue affecting the automaker and said he expects 12 months of stormy weather ahead. Tesla continues to slash the prices of its electric vehicles in markets around the world to try and boost sales. A halt to interest rate increase on the part of the Fed could also help the company and its share price. TSLA stock is currently trading 46% below its 52-week high and has slumped 14% in the last six months. Long-term investors might want to view the decline as a buy the dip opportunity.
On the date of publication, Joel Baglole held long positions in AAPL and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.