Financial Whirlwind: 5 Stocks Feeling The Jitters Ahead Of Expected Fed Interest Rate Hike

On Wednesday, the Federal Open Market Committee (FOMC) will almost definitely raise the Fed funds rate by 25 basis points to 4.75-5%, which might cause some market volatility, particularly for interest-rate sensitive equities.

The volatility of U.S. stocks during and in the aftermath of a Fed rate decision can vary based on a number of factors, including prior market expectations and the language used in the statement, as well as comments made during Chairman Jerome Powell's press conference.

A more hawkish than expected Fed meeting is likely to increase selling pressure on high-growth and technology stocks, since increasing interest rates represent a drag on the long-term profitability of these companies. 

Here are a few examples of stocks that have experienced increased volatility due to previous Fed interest rate hikes.

1) NVIDIA Corporation NVDA

• A large-cap high-growth tech stock, such as NVIDIA Corp., is particularly susceptible to Fed interest rate hikes and can see significant volatility as a result of a hawkish FOMC.
• NVIDIA currently screens the most expensive market valuation among mega-cap stocks, trading at 62 times its forecasted earnings, according to Benzinga Pro.  When interest rates and Treasury yields rise, investors may demand higher returns on risky assets, such as stocks, which can cause high-valued equities to decline in price. 
• NVIDIA has also risen 97% in 2023, and thus investors might opt for taking some profits after huge gains if prospects of "higher for longer" interest rates emerge. 
• Following the most recent Fed meeting on March 22, NVIDIA shares experienced an intraday volatility range of 4.86%.

2) Amazon, Inc. AMZN

• Interest rate rises can also have a negative impact on a company like Amazon, and the stock may see greater swings following a hawkish FOMC meeting, as higher interest rates represent a drag on consumer spending, limiting the affordability of consumer credit in the economy.
• Amazon currently has the second-most expensive market valuation among mega-cap stocks, trading at 59.8 times its forecasted earnings.
• Amazon has risen 22% year-to-date, and in Q1 posted its third-best performing quarter of the last decade.
• Following the most recent Fed meeting on March 22, Amazon shares experienced an intraday volatility range of 3.4%. 

Read also: How To Find Undervalued Stocks 

3) TSLA, Inc. TSLA

• Tesla is especially sensitive to interest rate increases since a higher cost of borrowing will be required to support the production and expansion of electric vehicles.
• Tesla's stock price is heavily influenced by its future growth prospects, and a larger discount rate lowers the share price in the discounted cash flow model. 
• Tesla currently trades at 43 times its projected earnings, and the stock price is also 16% higher than the average analyst price target.
• Tesla saw an extremely volatile reaction during the last Fed meeting on March 22, with shares seeing a 5% high-to-low intraday range.

Chart: Tesla Price Action on March 22, 2023

4) American Tower Corporation AMT

• American Tower Corporation is one of the largest U.S. REITs, and its high level of indebtedness (the net debt is 5.5 times greater than the EBITDA) makes the stock particularly vulnerable to the threat of rising interest rates.
• Despite already dropping 5% in 2023, after losing 28% at the end of the 2022 fiscal year, American Tower continues to trade at 43 times its forecasted earnings.
• The company's share price is also 20% higher than its average analyst price target.
• American Tower's intraday high-to-low volatility on March 22nd was about 3.5%. 

5) MercadoLibre, Inc. MELI

• MercadoLibre, also known as the Amazon of South America, is especially susceptible to exchange rate risk due to its extensive operations in numerous Latin American countries. Thus, higher U.S. interest rates can act as a headwind for MercadoLibre via the dollar appreciation channel.
• Additionally, the stock exhibits one of the lowest cash-to-short debt ratios (2.60x) and EBITDA over interest rate expenditures (5.50x), indicating a delicate liquidity position.
• The 52% year-to-date gain makes this company particularly sensitive to profit-taking behavior, especially because the share price has nearly entirely retraced losses from 2022.
• During the session of the last FOMC meeting, MELI dropped 2.8%.

Read now: Goldman Sachs Expects One Last Fed Hike in May But Warns About High Rates For Longer