These stocks should beat the market as the Fed keeps boosting short-term rates, history shows

Published Wed, May 4 202212:01 PM EDTUpdated Wed, May 4 20222:28 PM EDT

With the Federal Reserve hiking interest rates Wednesday, certain stocks that outperformed when short-term rates popped in the past could be poised to win again. The Fed at its May policy meeting raised rates by half a percentage point — the biggest hike in two decades — to fight inflation. The central bank also indicated it will begin reducing asset holdings on its $9 trillion balance sheet . Short-term rates have climbed this year as investors braced for the hiking cycle, which began at the Fed's March meeting. The 2-year Treasury yield on Wednesday morning surged to its highest level since 2018. Consensus forecasts call for the Fed to hike rates at each remaining policy meeting this year, and to withdraw stimulus by drawing down its balance sheet. That leaves investors wondering if the central bank will get even more aggressive to try to tamp down inflation. Under almost any scenario, though, short-term rates should continue higher. To find the stocks that worked in previous periods when short-term rates jumped, CNBC Pro identified the 10 biggest monthly increases in the 2-year yield within the past five years, excluding 2022. We ranked the stocks by their median move during those 10 individual months. CNBC Pro then screened for stocks analysts currently like: Names that have a buy rating from a majority of Wall Street analysts and a consensus price target with at least 10% implied upside. Take a look at our list of the top ten winners when short-term rates jump. Charles Schwab makes the list with a median gain of about 7.9% during periods of rising short-term rates. The firm benefits from higher short-term interest rates as it reinvests its customer balances at higher yields, while the rate it pays on those balances lags behind, widening the net interest margin. It also gets to reinvest its own cash and fixed income portfolio assets at higher rates. Plus, Schwab can charge more for any loans it makes, such as for margin trading, as the Fed moves rates higher. Schwab's chief financial officer recently said the net interest margin could climb by this year's Q4 if the Fed Funds rate moves to 2.25%-2.50%. SVB Financial Group is another financial name on the list. Shares in the parent company of Silicon Valley Bank have a median return of 8.2% when short-term rates climbed. The bank stock recently got an upgrade from Oppenheimer, which said SVB was "on sale" after a pullback this year. "We think that the simple story that rising rates are good for banks is still very much in place," Oppenheimer analysts said in a note Tuesday. Also making the list are a number of cyclical stocks tied to the economy. Industrial and energy names such as Enphase Energy and Halliburton performed well in the past, as did consumer stock Advance Auto Parts . —CNBC's Scott Schnipper contributed to this report.

A pedestrian passes in front of a Charles Schwab Corp. bank branch in downtown Chicago, Illinois.

Christopher Dilts | Bloomberg | Getty Images

With the Federal Reserve hiking interest rates Wednesday, certain stocks that outperformed when short-term rates popped in the past could be poised to win again.