The ASX stocks that outperformed last time the Fed started hiking rates

Last week, the US Federal Reserve increased its benchmark interest rate for the first time in three years. 

In a unanimous 12-0 decision, the Fed raised rates by 25 basis points to a target range of 3.75-4%. The majority of Fed policymakers also signalled that they expect at least one more rate hike this year. 

If this is the start of a new rate hiking cycle, it could be bad news for the ASX if precedent is anything to go by. 

The last time the Fed entered a rate hiking cycle, back in March 2022, the ASX 200 initially responded well, before dropping more than 10% over the next few months.

But certain stocks fared better than others during the initial selloff. The stocks in the table below all outperformed the index in the early months of the Fed's rate hike cycle.

What's of particular interest is the sector representation across these 20 stocks:

• Industrials — 7
• Energy — 5
• Utilities — 2
• Materials — 2
• Financials — 2
• Health Care — 1
• Consumer Staples — 1
• Discretionary, Tech, Telcos and Real Estate - Nil

It seems Australian investors worried about inflation and rising rates in 2022, and the headwinds that could bring to the global economy, mostly sought shelter in defensive sectors - Industrials and Energy. 

Many of those stocks were already performing strongly at this time as a result of the Russia-Ukraine conflict and its impact on energy prices. 

A similar parallel can be drawn right now. If the Fed continues to hike, and the RBA follows suit as predicted, then defensive stocks exposed to oil and energy prices may see the same outperformance enjoyed by some of the stocks listed above in 2022. 

It also lines up nicely with analysis by UBS, which found Energy was the only sector that has a positive correlation to rising interest rates. 

As my colleague Chris Conway wrote: "Long-duration equities become increasingly vulnerable if bond yields keep climbing, and the market's 'price makers', particularly in energy, may be among the few beneficiaries of a higher-for-longer world."

If we're entering that higher-for-longer world, then Energy and Industrials could be where you want to find yourself.