Stocks That Thrive in a Rising Interest Rate Environment, According to Goldman Sachs
The surge in interest rates this week has led to significant losses in the stock market. However, there are certain stocks that have a track record of performing well when yields climb. The benchmark 10-year Treasury yield reached a sixteen-year high, driven by the Federal Reserve's plan to maintain higher rates and positive signs in the job market. Recognizing this trend, Goldman Sachs has provided clients with a selection of stocks that exhibit positive price sensitivity to a higher 10-year Treasury yield. In simpler terms, these stocks tend to see an increase in share prices when long-term rates rise.
Stocks with Positive Price Sensitivity
Among the stocks identified by Goldman Sachs is cloud software firm Salesforce. With a remarkable 57% surge since the beginning of the year, Salesforce has benefited from consecutive earnings beats and investor enthusiasm surrounding artificial intelligence. CEO Marc Benioff anticipates further growth, particularly from the messaging platform Slack, which he believes could become a pivotal leader in AI. Although the stock experienced a nearly 7% pullback this week, its overall performance has been strong.
Other Notable Stocks
Boeing, the aerospace giant, has seen a modest increase of approximately 5% since the start of 2023. However, the company faced challenges with a flaw in the fastener holes of its 737 Max, resulting in delayed deliveries. Mixed quarterly results in July, with an earnings miss but a revenue beat, contributed to a nearly 9% decline in shares since Monday.
In the materials sector, fertilizer producer Mosaic has experienced a decline of over 15% since the beginning of the year. Recent days have seen a further downturn due to a ruling from the Court of International Trade regarding phosphate imports, resulting in a 5% decline since Monday. Nevertheless, historical data suggests that Mosaic tends to perform well when interest rates increase.
Considerations and Potential Risks
While these stocks have historically thrived in a rising interest rate environment, it's important to note that a significant increase in rates could trigger a recession, which may negatively impact their performance. For instance, Boeing would benefit from rising rates in a strong economy scenario, but if rates continue to rise due to inflationary forces and the economy falters, the company may deviate from its usual trend.
Please note that the information provided is subject to change, and it's essential to stay updated on market developments.
Implications of Rising Interest Rates on New Business Formation
The recent surge in interest rates has led to considerable losses in the stock market, but some stocks have historically thrived in such an environment. Goldman Sachs has identified these stocks, which could offer valuable insights for new businesses navigating a rising interest rate environment.
Learning from Successful Stocks
One of the stocks identified by Goldman Sachs is Salesforce, a cloud software firm that has seen a significant surge this year. The company's success, despite rising interest rates, can be attributed to consecutive earnings beats and investor enthusiasm for artificial intelligence. For new businesses, this could suggest the value of innovative technologies and strong financial performance in a challenging economic climate.
Understanding the Risks
However, it's important for new businesses to understand the potential risks associated with rising interest rates. For instance, Boeing, which has seen a modest increase this year, could face challenges if rising rates trigger a recession. The aerospace giant's experience underscores the importance of economic conditions in determining a company's performance in a rising interest rate environment.
Adapting to Market Conditions
In the materials sector, Mosaic, a fertilizer producer, has experienced a decline this year due to various factors. However, the company has historically performed well when interest rates increase, suggesting that new businesses in the materials sector could still thrive in a rising interest rate environment with the right strategies.
As the economic landscape continues to evolve, new businesses must stay updated on market developments and adapt their strategies accordingly. The experiences of companies like Salesforce, Boeing, and Mosaic offer valuable lessons for navigating a rising interest rate environment.