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These are the Dow stocks to buy and sell as rates surge

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With interest rates surging and knocking the overall stock market back to its bear market lows, investors can win by finding the stocks that gain as yields increase. Markets were choppy Tuesday after the yield on the U.S. 10-year Treasury again approached the key 4% level in overnight trading before pulling back. The 10-year Treasury yield has been retesting that level since breaking above it last month for the first time since 2008. With the Federal Reserve bent on further tightening policy and likely more tough inflation data ahead, rates could be set to keep increasing. CNBC Pro sought to find the stocks with the most positive correlation to rising rates. We screened the Dow Jones Industrial Average to find the members with the highest correlation to the ProShares Short 20+ Year Treasury fund , which is a proxy for rising rates. Here are the five stocks in the Dow that win the most when rates are on the move. The five Dow stocks most positively correlated to rising rates include Merck , Johnson & Johnson , Procter & Gamble , IBM and Walmart . These names offer investors defensive attributes and steady cash flows in the event of a recession. This week, Merck was upgraded to buy from neutral by Guggenheim , which said the biopharma stock will get a boost from growth in key products, such as Gardasil and Keytruda. Merck has a 0.5 positive correlation to rising interest rates. Meanwhile, AllianceBernstein, which has a market perform rating on IBM ahead of its earnings results next week, said it was “torn” on the stock. The firm said IBM is heading into results against a challenging macro backdrop, but that it has “the most defensive business model” in its coverage. At the same time, higher rates will hurt five Dow stocks most negatively correlated to the ProShares fund, such as Boeing , Walt Disney and Cisco Systems . Disney shares, which are already down nearly 40% this year, could come under more pressure. On Tuesday, Goldman Sachs trimmed calendar year 2023 advertising estimates for Disney by 1%, along with other streaming companies, citing continued expectations of a potential economic slowdown over the next year. Disney has a 0.7 negative correlation to the ProShares fund. Rising rates, which also expose high valuations, would also ding tech stocks such as Microsoft and Salesforce . Both have a roughly 0.7 negative correlation to the ProShares fund.

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