3 Stocks That Did Well the Last Time the Fed Raised Rates Aggressively

The Federal Reserve recently raised interest rates for the first time in years, and more rate hikes are expected. Another hike may even happen before the end of the year. How much higher rates end up going is anyone’s guess at this point, as inflation remains elevated and the war in Iran doesn’t appear to be ending anytime soon.

For investors, now may be a good time to consider investments that may do well even amid adversity. Three stocks that did well the last time the Fed aggressively raised interest rates in 2022 include ExxonMobil (XOM -1.17%), Merck (MRK -2.67%), and Super Micro Computer (SMCI +3.24%). Here’s how they did back then, and whether these stocks can once again prove to be good buys right now.

ExxonMobil

Oil and gas giant ExxonMobil generated exceptional returns of more than 80% back in 2022, which was impressive given that the S&P 500 declined by more than 19%, in what proved to be a disastrous year for the markets. The company is a leader in the oil and gas sector and benefits from rising oil prices, which were soaring in 2022. Now, they’re also at elevated levels, and once again, ExxonMobil’s stock is a hot buy – it’s up around 50% this year.

Investing in the company can be a good way for investors to hedge against overall market risk, because if inflation is high and interest rates are rising, ExxonMobil’s business may do better than most due to rising commodity prices.

Another great reason to consider buying the stock is its dividend, which currently yields 2.4% – that’s double the S&P 500 average of 1.1%. Plus, ExxonMobil has been increasing its payout for decades. With strong earnings and a leadership position in the industry, the company’s financials are likely to improve, and it will be able to continue raising its dividend for the foreseeable future.

Merck

Another stock that did well in 2022 was healthcare company Merck, whose shares rose by 45%. The healthcare industry can be a fairly insulated area of the economy, as pharmaceutical drugs and medical devices are consistently in high demand and generally don’t depend on the economic cycle. That can make investing in these types of companies fairly safe moves for investors.

Merck had a strong year in 2022, with sales rising 22% and its leading cancer drug, Keytruda, growing at the same rate. The company’s operations are robust, and with its drugs in high demand, Merck performed well even as other stocks struggled. While it’s not a guarantee that every healthcare stock will perform better in a downturn, it’s a great example of the safety the sector can offer.

This year, Merck’s stock is once again doing well, rising by around 40% even as market conditions may not appear ideal. It also offers an above-average dividend, currently yielding 2.3%.

Super Micro Computer

Perhaps the most surprising stock that did well in 2022 was Super Micro Computer. Shares of the tech company soared by nearly 87% that year. The business experienced strong growth, with net sales of $5.2 billion rising by an impressive rate of 46% for its fiscal year ending June 30, 2022.

It was a strong performance for a stock that started the year with a modest valuation of around $2 billion. Today, it’s worth 10 times as much, and it’s no longer a small, fast-growing tech company. It is up this year, but by a fairly modest 8%.

Meanwhile, in recent years, it’s been involved in some concerning developments, with its auditor resigning in 2024 and raising issues about policies and controls, and the company’s co-founder being charged this year with smuggling Nvidia chips to China.

While Super Micro did well the last time the Fed was aggressively raising interest rates, I’m less convinced it would do well again if that were to happen in the near future.

It’s an important reminder for investors to always reassess a stock and not assume that what happened in the past will repeat. Every year is a new one, with an entirely new set of circumstances to consider. Super Micro, while it did well in the past, is not a safe stock to own by any means, especially when market conditions are less than ideal.