Disney, Tesla, Chipotle and others could rally if the Fed pauses
Some stocks have been bigger casualties than others of the Federal Reserve’s campaign to lift interest rates — and what the central bank says at the conclusion of this week’s two-day policy meeting on Wednesday could mean the difference between a rally and a further rout for those companies. The Fed kicked off its meeting Tuesday and is widely expected to announce a rate increase of a quarter of a percentage point on Wednesday. As important, investors will also listen closely for what its members have to say about plans for the future — whether hikes will continue or if there will be a pause. If history is any guide, the same stocks that were slammed after the Fed’s decision to lift rates in 2022, could now rally if officials suggest they will soon pause. To find such names, CNBC Pro looked back at the stocks that were hit the hardest in the five trading days after each of last year’s Fed rate hikes, starting with the first quarter point increase last March. Of those, we took the worst median performance within that five-day period for each of 2022’s seven rate hikes. Here are the top 25 casualties of the Fed’s rate hikes, which include a number of consumer names, as well as their median performance in the week after each increase. Warner Bros Discovery tops the list, losing a median 10.7% after the Fed rate hikes (bearing in mind the present company was put together in early April last year.) The HBO parent had a terrible 2022, tanking nearly 60%, but is up 51% so far this year. In December, CEO David Zaslav vowed to cut costs and boost cash flow. Earlier this month, the company raised the monthly price of HBO Max by $1. Another media conglomerate, Walt Disney , was also slammed by the Fed rate increases. Its overall median decrease was just over 7%. Its largest median loss, more than 18%, came after the Fed raised rates by three-quarters of a percentage point in November. That was also when Disney reported earnings and sales that missed analyst estimates for its fiscal fourth quarter. Later that month, Disney ousted CEO Bob Chapek and brought Bob Iger back to the helm . But even when there wasn’t management turmoil, Disney lost a median 9% after the Fed’s September rate increase, and 8% after the central bank’s December meeting. By year’s end, Disney shares lost nearly 44%, although they’ve rebounded 34% so far this year. Meanwhile, MGM Resorts International saw a median 7% loss after the Fed rate hikes, with the largest slump coming after the July meeting when it lost 14.3%. The casino operator has struggled, along with other casino stocks, amid inflation and Covid lockdowns in China. Earlier this month, MGM was upgraded by Stifel to buy, with the firm noting it is a big believer in the Macau/China reopening trade as economic activity in the region slowly returns to normal. The Las Vegas strip will also continue to flourish thanks to a strong event calendar and the return of group and convention traffic, analyst Steven Wieczynski said. MGM lost 25% in 2022 and has gained nearly 21% year to date in 2023. Chipotle Mexican Grill was also hit in the wake the Fed’s rate increases, losing a median 6.9% overall. The fast-casual chain is a favorite among Wall Street analysts , including Goldman Sachs, who named it a top pick for 2023 . “We continue to see CMG as digital leader in the restaurant industry and believe the company will continue to use product innovation and promotional activity to create a protective moat around the brand and re-accelerate traffic in 2023,” Goldman analyst Jared Garber said in December. Chipotle lost nearly 21% in 2022 and is up almost 17% so far this year. Lastly, Tesla comes in at No. 10 on the list, with its largest median decline of nearly 25% coming in March. Overall, the electrical vehicle leader lost a median 6.8% in the week following last year’s Fed rate hikes. Tesla’s stock had a dismal 2022, losing 65% across the entire year. However, shares jumped nearly 40% so far in 2023 after Tesla reported record revenue and earnings beat analyst estimates. CEO Elon Musk also said Tesla was on target to potentially produce 2 million vehicles this year. Wall Street analysts are divided over Tesla’s stock , with bulls encouraged by the company’s strong orders and bears concerned about its gross profit margins. — CNBC’s Michael Bloom contributed reporting.
