Spiking yields are spooking the stock market. These equities win when rates rise
As investors weigh an environment of spiking bond yields, Piper Sandler came up with a list of stocks that could benefit from elevated interest rates. Higher bond yields are now a major risk to the stock market, in a way that they weren’t just a short time ago. The rate on the U.S. 10-year Treasury was last sitting at 4.59%, while the longer-dated 30-year Treasury yield traded at 5.12%. Just a day earlier, the 30-year yield crested above 5.19%, its highest level since July 2007. For the most part, stocks have so far been able to shrug off concerns of higher interest rates, as a strong fundamental backdrop should help companies deal with greater pricing pressures. The S & P 500 was last higher Wednesday, on pace to snap a three-day string of losses. The prospect of AI-driven earnings from Nvidia after the close also boosted the major averages. But higher yields could dent any progress on the broadening in the market, and they could limit the stock market’s advance going forward. “We continue to believe—and observe—that the macro and fundamental backdrop is strengthening and broadening,” Michael Kantrowitz wrote on Wednesday. “However, higher oil prices and interest rates have crushed the broadening trade since February 27, as higher equity risk premiums (ERPs) have offset broader EPS revisions and growth.” “We will need to see rates decline to return to a broader equity market—and, at this point, to see any meaningful index gains from here,” he said. Given this, the Wall Street firm identified stocks that could benefit from a period of higher interest rates, specifically those defensive names that have a higher correlation to the 10-year Treasury yield. Here are some of those names. Genuine Parts Company has a high correlation to the 10-year Treasury yield, of 78%, meaning it could outperform if rates go higher from here. The consumer discretionary stock has come under pressure this year, off nearly 40% from its recent high, as the broader sector comes under pressure from inflation. CNBC’s analyst consensus tool shows that the industrial and automotive replacement parts distributor is generally liked on the Street, garnering buy or strong buy ratings from six out of 14 analysts. In the past, the company has benefited from an uncertain economic outlook, as consumers are more likely to fix up their current vehicles rather than rushing off to buy new ones — especially as financing costs rise. Conagra Brands , the American packaged food company behind Healthy Choice frozen foods and Duncan Hines desserts, surfaced on the list. It has a 75% correlation to the benchmark Treasury yield. Higher yields could give the consumer staples stock some relief, as shares are down about 40% off their 52-week highs. Conagra has dealt with margin compression amid rising commodity prices. Insurers such as Arch Capital Group , Cigna Group and Everest Group surfaced on the list, as the group can charge higher rates in a rising yield environment.
