When the Federal Reserve makes its policy decision Wednesday afternoon, certain stocks have the most at stake because of their historical correlation to interest rate moves. Traders are assuming the Fed will raise its benchmark rate for the 11th time in this cycle , but what they don’t know is what Fed Chief Jerome Powell will say about the central bank’s future policy at his press conference following the decision. There are two likely scenarios: The Fed raises its fed funds rate, but Powell signals the inflation fight is far from over. Market rates are likely to shoot higher, benefiting a select group of stocks highlighted below, while causing the broader market to decline. The Fed raises and takes a wait-and-see approach, hinting that it could be done hiking for this cycle. Market rates are likely to decline and the broader stock market is likely to rally, with a certain group of stocks highlighted below gaining the most. First let’s review the rare group of stocks that would win under scenario #1. Heading into Wednesday, certain investors are saying this scenario is the most likely, especially given the recent rally in stock prices. “Investors should beware of becoming too optimistic that today will mark the end of the rate-hiking cycle,” wrote Solita Marcelli, chief investment officer Americas for UBS Global Wealth Management. “The Federal Reserve will remain eager to stress its inflation-fighting credentials.” To find the winners if rates spike on the Fed, CNBC PRO looked at the Russell 1000 stocks with the highest correlation to RISING RATES over the last 50 days. In order to do this, we used the short-term bond fund, the iShares 1-3 Year Treasury Bond ETF, as our proxy for the bond market. So we found the stocks with the highest negative correlation to bond prices. Since rates increase when bond prices fall this gives us the stocks that could win today if RATES INCREASE. By no coincidence, insurer Primerica is at the top of the list. If rates move higher on the Fed, Primerica can charge higher rates for its insurance and financial products. If rates move lower Now let’s look at the winners if the Fed signals it could be done and rates move lower. The following have the highest positive correlation with short-term bond prices. In other words, they win under a FALLING RATES scenario. This group is a mix of risky stocks that would benefit from a market rally induced by falling rates. There’s also some direct beneficiaries, like fintech PayPal , which would be helped by lower interest rates boosting transactions and lowering what it has to charge consumers.
