2 Stocks to Watch as the Fed Boosts Interest Rates Again

The stock market suffered a setback late Wednesday, with major market benchmarks falling in the last hour of trading after the Federal Reserve raised interest rates by a quarter percentage point. Declines for the Nasdaq Composite (^IXIC -2.05%), Dow Jones Industrial Average (^DJI 0.56%), and S&P 500 (^GSPC -0.88%) were close to identical. Investors reacted negatively to the idea that rates might remain high longer than hoped, and comments from Treasury Secretary Janet Yellen that the Federal Deposit Insurance Corporation (FDIC) likely wouldn't boost the amount of assets protected by deposit insurance also seemed to raise fears about the health of the banking system.

Data source: Yahoo! Finance.

A pair of stocks made noteworthy moves even before the Fed's news came out. Carvana (CVNA 0.29%) got a bounce after having seen huge declines over the past year as investors liked the online car dealer's latest business update. However, Charles Schwab (SCHW 0.67%) shares lost ground as Wall Street analysts had less positive things to say about the brokerage giant's prospects. Read on to learn more about both companies.

Carvana looks to strengthen its balance sheet

Shares of Carvana were up 6% on Wednesday. The car retailer announced an effort to restructure some of its debt in order to strengthen its balance sheet  and ease fears that its shareholders have after the stock's big plunge over the past several months.

Carvana said that it would offer to exchange existing debt that's maturing over the next two to three years for a new set of secured notes with extended maturities. Under the terms of the exchange offer, Carvana hopes to issue as much as $1 billion in five-year senior secured second-lien notes, which offer interest rates ranging from 9% to 12%. One thing bondholders will have to be careful of is that the new notes would allow Carvana to make payment of interest in kind rather than in cash under certain circumstances, which is generally a move that suggests companies are doing what they can to conserve cash.

However, the exchange offer isn't necessarily a done deal. Carvana will have to attract enough interest from current bondholders offering at least $500 million in existing debt. Otherwise, Carvana likely won't follow through on the exchange offer.

Some bargain-seeking investors have been looking at Carvana as a potential turnaround candidate. Along with the offer, Carvana gave guidance for its first-quarter results, expecting revenue between $2.4 billion and $2.6 billion with unit sales between 76,000 and 79,000. Those numbers are well below year-earlier levels, but Carvana's expected adjusted pre-tax operating losses are expected to narrow considerably. That suggests that while the dealer still has a long way to go, today's move might have been a good step in the right direction.

Schwab gets a lower price target

Elsewhere, shares of Charles Schwab were down 5%. The discount brokerage pioneer got negative comments from stock analysts on Wednesday, sending the stock lower.

Analysts at Barclays (BCS 1.19%) cut their price target on Charles Schwab stock by $18 per share, setting a new target of $61. Barclays did keep its equal weight rating on the stock, choosing not to do a downgrade along with the price-target reduction.

Schwab shares have taken a big hit lately, as fears about the health of the banking system have spilled over into the brokerage arena. One thing to remember about Schwab is that even though its brokerage operations get most of the attention from investors, it also operates a bank of its own.

Schwab seems like an unlikely candidate for a bank run from customers, given that most of its deposits are FDIC-insured. Nevertheless, analysts seem to believe that there's a risk of more downside ahead, and Schwab will have to be careful to reassure investors in order to avoid further fallout and not to get lumped in with bank stocks more generally.