The Federal Reserve continues to raise interest rates in an effort to lower inflation that currently stands at 6.5% in America. On Feb. 1, the Fed lifted its benchmark interest rate another 0.25 of a percentage point to a range of 4.50% to 4.75% as it continues to try to lower inflation. The Fed’s key interest rate is now at its highest level in more than 20 years. That is bad news for stocks in general. And it’s particularly negative for rapidly growing, unprofitable companies that need to borrow heavily to fund their expansion. Worse, the Fed has signaled loud and clear that more rate hikes are likely in the coming months as the central bank works to bring inflation back down to its 2% annualized target. Here are three stocks to sell after the most recent Fed rate hike.
Rivian Automotive (RIVN)
There are several reasons to sell the shares of Rivian Automotive (NASDAQ:RIVN). First, the California-based electric vehicle start-up is the type of company that is particularly sensitive and susceptible to higher interest rates given that it is taking on debt to fund its growth. At last check, Rivian’s debt load was nearing $2 billion.
At the same time, the company has struggled to fill orders and supply Amazon (NASDAQ:AMZN) with a fleet of its electric delivery vans. Another one of Rivian’s former partners, Ford Motor Co. (NYSE:F), has ended its relationship with the fledgling EV maker and sold most of the RIVN stock it held.
Beyond that, the stock has been a disaster, falling 85% since its November 2021 market debut. This is definitely a stock to sell after the most recent Fed rate hike.
Another stock that has been a disaster is FuboTV (NYSE:FUBO). The New York City-based steaming service’s stock has plunged more than 90% since hitting a November 2021 high of nearly $50 a share. Today FUBO stock is changing hands for less than $3. Growth hasn’t been a problem for the company, whose subscriber base surged 31% year-over-year in 2022 to 1.23 million.
FuboTV’s revenue rose 40% in 2022 as it marketed its sports-heavy content as an alternative to traditional cable and satellite television. However, the firm’s ongoing lack of profits and its now aborted plan to push into sports gambling and fantasy gaming has made many investors skittish about FUBO stock.
Plus, higher interest rates have led to a steep decline in the online advertising that FuboTV relies on. Meanwhile, the competition in the streaming space is fierce and only getting fiercer. FUBO is not a good stock to own when interest rates are climbing.
Six Flags Entertainment (SIX)
Will the Fed orchestrate a soft landing, i.e. tame inflation without pushing the U.S. economy into a recession? That remains to be seen. But with consumer prices remaining stubbornly high and interest rates also marching higher, most Americans’ wallets have been squeezed.
While consumer spending in the U.S. has held up so far, there is a risk that discretionary spending on items such as leisure and travel could decline if the U.S. economy enters a recession later this year. This would be bad news for Six Flags Entertainment (NYSE:SIX) as the company continues to recover from the pandemic.
Six Flags has struggled coming out of the pandemic when its more than 25 amusement parks and water parks were forced to close or operate at reduced capacity. Prior to Covid-19, Six Flags welcomed nearly 35 million people to its parks each year. It has yet to get back to those pre-pandemic levels.
High inflation and interest rates, coupled with the prospect of a recession, could continue to keep people away from Six Flags’ rollercoasters and water slides. This situation helps to explains why SIX stock is down 32% in the past year and has declined 57% over the last five years.
At $28 a share, Six Flags stock might look affordable. But don’t be fooled. This is a stock to be wary of after the most recent Fed rate hike.