Rate Hikes Could Be Coming: History Likes These 4 Stocks
The bond market is already pricing a December rate hike at 70% odds, and history shows most stocks crumble when the Fed tightens. Four companies have a track record of defying that pattern, and the reasons why reveal something most…
Although the Federal Reserve spent much of the past cycle easing, Wall Street is now bracing for a turn in the other direction. The central bank raised rates at its September meeting, and the upper bound of the federal funds target range has held at 4.00% on every daily reading from October 3 through November 1. But the bond market suggests the Fed’s work may be unfinished. The 10-year Treasury yield jumped from 3.97% on February 27 to 5.31% on October 5 before ending at 4.98% on October 29.
Core PCE, the Fed’s preferred inflation gauge, rose 0.3% in September to an index reading of 130.90, the highest level in the past year. Rising yields typically rattle stocks priced on future cash flows, which leaves the benchmark S&P 500 and the technology-packed Nasdaq Composite exposed if the Fed tightens again.
Traders Price a December Hike as the Base Case
On Kalshi, a CFTC-regulated prediction market, the contract for a 25-basis-point hike at the December 9 meeting last traded at 70 cents, meaning market-implied odds of 70%. Traders assigned 29% odds to the Fed holding steady, while a rise larger than 25 basis points drew just 2 cents. That pricing puts the focus on businesses that have historically held up when borrowing costs climb.
History’s Rate-Hike Scorecard Favors These 4 Stocks
24/7 Wall St. mapped out the market’s possible paths after the Fed’s 2015 liftoff, and the record since points to four types that tend to endure tightening: energy integrateds, capex-driven equipment makers, cash-rich software platforms, and derivatives exchanges. Exxon Mobil (NYSE:XOM | XOM Price Prediction), Caterpillar (NYSE:CAT), Microsoft (NASDAQ:MSFT), and CME Group (NASDAQ:CME) represent each group. The table tracks share prices through the 2022 to 2023 hiking cycle and returns since the final hikes of the last two cycles.
| Stock | Feb. 2022 to July 2023 | Since July 26, 2023 | Max Drawdown Since July 26, 2023 | Since June 29, 2006 |
|---|---|---|---|---|
| Exxon Mobil | 36.8% | 98.3% | 15.3% | 499% |
| Caterpillar | 41.4% | 152.1% | 18.1% | 1,284% |
| Microsoft | 12.4% | 58.5% | 14.6% | 3,086% |
| CME Group | -15.9% | 74.3% | 18.9% | 536% |
After the 2023 final rise, none of the four posted a drawdown deeper than 18.9%, keeping each short of bear-market territory.
Exxon Mobil: Real Assets That Reprice With Inflation
Exxon sells a commodity that tends to rise with the inflation that forces hikes, and it carries debt-to-equity of just 0.17 with 56.3x interest coverage. Third-quarter adjusted EPS of $4.23 beat the $3.98 estimate, and free cash flow rose 215% to $19.1 billion. The company extended its dividend streak to 44 consecutive years and set a $20 billion repurchase target for 2027. Shares trade at 26 times trailing earnings. The risk: Middle East disruptions fueled the refining boom, and management still flagged a 350 KBD regional impact for the fourth quarter.
Caterpillar: A $78 Billion Cushion
Caterpillar’s record backlog of $78 billion, up 96% from a year earlier, buffers demand if higher rates slow new orders. Adjusted EPS of $7.20 exceeded the $7.04 estimate, while Power Generation revenue jumped 30% on data-center turbines and engines (the same AI expansion we broke down in a free report on seven suppliers behind the boom, here). Cat Financial past dues of 1.31% sit at their lowest since 1998. The risk: roughly $2.2 billion in annual tariff costs, while shares fell 21.73% over the past month and dragged on the Dow Jones Industrial Average after the report.
Microsoft: Pricing Power at 29 Times Earnings
Microsoft pairs a 46.78% operating margin with recurring enterprise revenue. Fiscal first-quarter non-GAAP EPS of $4.89 beat the $4.72 estimate, Azure grew 48%, and commercial remaining performance obligations reached $677 billion. At 29 times trailing earnings, it carries a small premium to Exxon. The risk: management guided calendar-year spending to approximately $170 billion, and finance-lease interest already drives other income toward negative $300 million.
CME Group: Volatility Pays the Toll Collector
Rate uncertainty drives interest-rate futures, CME’s largest asset class. Third-quarter revenue rose 13% to $1.7 billion, adjusted EPS hit $3.02, and average daily volume set a third-quarter record of 29.4 million contracts. The chief executive put it plainly: "It’s a very dangerous world out there." The risk: CME carries the most mixed record of the four, slipping during the last hiking cycle.
What to Watch Before December 9
Keep an eye on the next core PCE reading, the 10-year yield against its 5.31% high, and whether the 70% rise odds firm up. I’m watching CME’s fourth-quarter volume, which was running 17% above last year’s record. Long term, all four stocks have climbed since the 2006 final hike, as the returns above show. These four have already survived that history, and investors can track how each responds if the Fed hikes again.
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Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad, diverse career, including a stint as creative services director at an NBC affiliate in Austin, Texas, gives him unique insight into the financial industry.
Lee Jackson's journey in the financial industry spans more than 30 years, including nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career spanned pivotal sell-side Wall Street events, from the dot-com rise and bubble to the Long-Term Capital Management debacle, 9/11, and the Great Recession of 2008. This reflects his resilience and adaptability amid market volatility.
Lee Jackson’s practical financial industry experience, gained through a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing across various platforms. This unique combination allows him to shed light on the intricacies of Wall Street in a way only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.
Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.
