The Fed’s “hawkish” stance has gradually become clear, and these three stocks may continue to outperform the market
The last Federal Reserve Open Market Committee (FOMC) monetary policy meeting in 2021 ended early on Thursday morning.
The Federal Reserve announced to maintain interest rates unchanged. Fed Chairman Powell subsequently announced at a press conference that starting from January next year, it will reduce debt purchases by $30 billion a month, which is double the level of debt purchases in November and December this year, saying that it may continue to adjust the speed according to the economic outlook.
The dot matrix released after the meeting showed that most officials expect to raise interest rates three times next year and the following year, and two interest rates in 2024.
Taking into account the Fed’s increasingly hawkish stance, we will share three stocks that may benefit from this trend in this article:
1. Charles Schwab
Year-to-date stock price performance: 53.3%
Market value: $152.7 billion
Charles Schwab Corp's (NYSE:SCHW) share price has risen by more than 53% this year. Among them, investment banking has performed strongly. As investors prepare for the interest rate hike in 2022, Charles Schwab's share price is expected to rise further in the coming months.
The Texas-based financial services company acquired rival TD Ameritrade last year to provide retail banking, commercial banking, electronic trading platforms, and wealth management consulting services to individual and institutional clients. As of September 30, the company's total customer assets were US$7.1 trillion.
Market data shows that Charles Schwab hit a record high of US$84.49 on October 26 and closed at US$81.60 on Wednesday.
As one of the largest banking institutions in the United States, Charles Schwab will generate higher net income when interest rates rise. In addition, when the Federal Reserve triggers market volatility, leading to increased trading activity, brokerage firms tend to benefit from higher fees.
Charles Schwab announced its impressive third-quarter results on October 15. Due to the surge in customer assets and strong demand for its investment-related products, the company's earnings and revenue for the quarter exceeded expectations. The company's earnings per share increased by 75% year-on-year to US$0.84, and sales soared 87% year-on-year to US$4.69 billion. More importantly, the company said that net profit totaled US$1.53 billion, a 119% increase from US$698 million in the same period last year, while net interest income increased by 51% to US$2.03 billion.
In addition, the bank’s newly opened brokerage accounts have exceeded 1 million for the fourth consecutive quarter, and Charles Schwab’s newly opened brokerage accounts have reached 6 million so far this year, which bodes well for the future.
2. Allied Credit Bank Comerica
Year-to-date stock price performance: 49.9%
Market value: $10.9 billion
Comerica Inc (NYSE: CMA) is one of the largest regional banks in the United States. Thanks to the improvement of the economy, stable loan growth and shrinking exposure to credit losses, the bank has performed outstandingly in the financial sector this year.
This financial services company headquartered in Dallas, Texas, manages nearly US$85 billion in total assets, provides commercial banking, consumer banking, and wealth management services. Its business is mainly distributed in Texas and California. , Michigan, Arizona and Florida.
United Credit Bank’s stock price soared from $55.86 at the beginning of the year to an all-time high of $91.62 on November 24, closing at $83.73 on Tuesday. Since the beginning of this year, the bank’s stock price has risen by nearly 50%, far exceeding the comparable returns of the Dow Jones Industrial Average and the Standard & Poor’s 500 Index.
Given that the Fed’s “hawkish” stance may lead to an increase in short-term interest rates in the entire U.S. Treasury market, Union Bank’s stock appears to be a stable investment that can last until 2022-higher interest rates and yields tend to increase banks The interest return obtained from loan products, or net interest income, is the difference between the interest income of assets such as loans, mortgages, and securities and the interest paid to depositors.
In addition, the third-quarter results of Union Credit Bank released on October 20 easily exceeded expectations, mainly due to strong deposit growth and fee income. It also gave optimistic guidance on the last quarter of this year and beyond.
More importantly, in recent months, the regional banking giant has increased its efforts to return more cash to shareholders by increasing dividends and stock repurchases. Currently, the bank will pay a quarterly dividend of $0.68 per share when it goes ex-dividend on January 1, 2022, with an annual yield of 3.32%.
Year-to-date stock price performance: up 117.1%
Market value: $7084 billion
Nvidia (NASDAQ:NVDA) is widely regarded as one of the global leaders in providing high-performance graphics processing units (GPUs) for game consoles, data centers and autonomous vehicles. Due to the soaring demand for chips, the company has been performing this year. One of the best companies.
In addition, as the world's largest manufacturer of video game chips, NVIDIA has also been working hard to join the "meta universe" world in recent months.
After setting a record high of US$346.47 on November 22, Nvidia’s share price closed at US$283.37 on Tuesday, a cumulative increase of about 117% this year. At current levels, the Santa Clara, California-based company ranks seventh in market capitalization on the American Stock Exchange.
Although Nvidia is widely defined as a growth stock, it is not as prone to soaring like other technology companies. Its profitable and cash-rich business model makes it a reliable bet when the Fed tightens its policy.
Moreover, a positive sign is that the chip manufacturer’s earnings reports released every quarter this year have exceeded Wall Street’s expectations. Among them, on November 17th, Nvidia announced that last quarter's earnings increased by 60% to 1.17 US dollars per share, and sales increased by 50% to 7.1 billion US dollars.
It is also worth noting that gaming is Nvidia’s largest business, with sales of US$3.2 billion in the third quarter, an increase of 42% over the same period last year. Data center sales are another bright spot for Nvidia, with a year-on-year increase of 55% to US$2.9 billion.
Looking ahead, Nvidia made it clear in its guidance for the current quarter as of January that the chip giant does not expect any slowdown in the next few months, and its revenue is expected to increase by 48% year-on-year to a record US$7.4 billion.