The Stocks to Play During a Rate-Hike Cycle

Following the freeze in interest-rate cuts at Wednesday's FOMC meeting, the market is already looking forward to when the Fed might start raising rates to support the dollar and fight commodity inflation.

According to the fed funds futures, there's a 24.7% chance of a rate hike at the Aug. 5 meeting. While that's down from a 44.1% probability a week ago, traders are still betting with 76.9% certainty that the FOMC will raise rates by the Sept. 16 meeting.

With that in mind, I used Bloomberg to go back and see what names and sectors within the S&P 500 were the best- and worst-performing in the previous five periods of 100 basis points of uninterrupted Fed rate hikes (1986-1987, 1988, 1994, 1999-2000 and 2004).

There were some surprises and some names that I expected to be on the lists, but some clear patterns did exist. For one thing, metals and mining stocks performed well, with Newmont Mining (NEM - Cramer's Take - Stockpickr) the standout winner.

Home-improvement retailers like Home Depot (HD - Cramer's Take - Stockpickr) were also consistent winners, which I thought was counter-intuitive in a period when the Fed is tightening monetary policy.

On the laggard side, tire and rubber names -- notably Goodyear Tire (GT - Cramer's Take - Stockpickr) -- were consistent losers. Representing a variety of sectors, Allied Waste (AW - Cramer's Take - Stockpickr), EMC (EMC - Cramer's Take - Stockpickr) and Range Resources (RRC - Cramer's Take - Stockpickr) each made the top-10 losers list in multiple periods.

Below are the top-five winning and losing sectors for the past three periods of interest-rate hikes. For the full report on what stocks are the biggest winners and losers when the Fed raises interest rates, check out the latest edition of the TSC Value Investor Newsletter.

1994 (Feb. 3 - May 17)
Winners
Healthcare Distributors	13.60%
Brewers	10.73%
Home Improvement Retail	8.92%
Leisure Products	5.59%
Personal Products	4.30%
Losers
Homebuilding	-31.81%
Airlines	-24.53%
Building Products	-22.89%
Forest Products	-21.80%
Specialty Chemicals	-19.22%

1999-2000 (June 29 - Feb. 2)
Winners
Semiconductor Equipment	111.79%
Biotech	110.74%
Computer Storage	102.39%
Wireless Services	100.92%
Semiconductors	71.01%
Losers
Environmental & Facilities Service	-65.46%
Office Electronics	-61.87%
Tires & Rubber	-57.44%
Leisure Products	-48.15%
Tobacco	-47.46%

2004 (June 29 - Nov. 10)
Winners
Gold	26.97%
Agriculture Products	24.02%
Steel	22.39%
Managed Health	20.25%
Specialized Finance	19.14%
Losers
Insurance Brokers	-35.42%
IT Consulting	-22.83%
Healthcare Distributors	-20.16%
Semiconductor Equipment	-17.97%
Semiconductors	-15.40%