Quantamental: Tools Stocks and FED Rate Expectations: China (PRC) | Home Appliances

Research evidence excerpt

Quantamental: Tools Stocks and FED Rate Expectations: China (PRC) | Home Appliances

China (PRC) | Home Appliances EquityJulyResearch6, 2026

Quantamental: Tools Stocks and FED Rate

Expectations

In this series, we use AI to scan through all our available data series to

identify winning strategies. In conclusion, we propose to follow the US

rate expectations and avoid the tools sector when rate futures implies

significant rate hike probability.

The portfolio and strategy: We built an equal weight portfolio comprising four tools stocks

(GreatStar, Techtronic Industries, Stanley Black & Decker and Makita). We use the futures

method to calculate FED rate hike probability and take 200 days mean and standard deviation.

We back-tested by long the portfolio when the probability suggests meaningful rate cut (mean

plus two standard deviation) and sell our positions when the rate hike probability is meaningful.

In our back-test since early 2015, we were able to improve the return and Sharpe vs. buy and

hold (Chart 1).

Key takeaway: Rate cut beneficiaries: The tools portfolio demonstrated a steady positive

average share price return during the FED rate cut cycles. However, the portfolio's performance

becomes very unpredictable during FED rate hike cycles. Among the four tools stocks,

GreatStar's shares demonstrate to be the most influenced by rate cycles (Chart 2). This is

evidenced by the prominent return to long/short the stock during rate cut/hike cycles.

The fundamental factors driving the results:

(1) Rate sensitivity: Intuitively, the four stocks have significant exposure to the US housing

market and US housing is sensitive to FED fund rates. More interestingly, however, rate may

also affect retailers' restocking and destocking decisions. We argue that retailers may become