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Jefferies Recommends Investing in Stocks with a History of Gains During Yield Declines

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Jefferies Identifies Stocks That Benefit from Lower Treasury Yields

Jefferies Equity Research suggests that lower Treasury yields could have positive implications for certain stocks on Wall Street. Following the Federal Reserve's decision to keep benchmark interest rates unchanged, stocks experienced a surge, despite Fed Chair Jerome Powell's remarks on the ongoing battle against inflation. The November Federal Open Market Committee decision led to a decline in Treasury yields, with the benchmark 10-year note dropping by 15 basis points. This decline was further supported by recent data indicating a cooling of inflation, as labor costs fell by 0.8% in the third quarter, surpassing economists' forecast of 0.7%.

Identifying Stocks with Negative Correlation

Jefferies conducted a screening process to identify stocks that historically benefit from lower interest rates, specifically those with a negative correlation to the 10-year Treasury. While stocks with negative correlation to U.S. bond yields have underperformed in the second half of 2023, Jefferies suggests that they could experience mean reversion if yields stabilize.

Stocks That Stand Out

Among the stocks identified by Jefferies, Microsoft, the tech behemoth, has been a notable beneficiary of the decline in the 10-year Treasury. With shares surging over 45% since the beginning of the year, Microsoft recently announced plans to integrate an artificial intelligence add-on to its Office 365 products, targeting businesses. Analysts estimate that the revenue generated from this add-on subscription fee could exceed $10 billion by 2026. D.R. Horton, a home construction company, also made Jefferies' list. With shares rising nearly 29% since the start of the year, D.R. Horton has garnered attention from Wells Fargo and Goldman Sachs, both of which recently upgraded the company. The focus on volume has been a key factor in these upgrades. Another notable inclusion on Jefferies' list is alternative asset manager Blackstone. With shares climbing more than 30% since the beginning of 2023, Blackstone recently made headlines with its joint venture with Vista Equity Partners. The venture involved the acquisition of renewable energy software provider Energy Exemplar, showcasing Blackstone's commitment to companies involved in the clean energy transition. In conclusion, Jefferies' analysis highlights the potential benefits for certain stocks in the face of lower Treasury yields. Microsoft, D.R. Horton, and Blackstone are among the companies identified as potential beneficiaries. As market conditions evolve, investors may consider these stocks as part of their investment strategies.

Lower Treasury Yields: A Boon for Certain Stocks and New Businesses?

Jefferies Equity Research's recent analysis suggests that lower Treasury yields could be a silver lining for certain stocks, a revelation that could have implications for new businesses. Amid the Federal Reserve's decision to maintain benchmark interest rates, stocks saw a surge, demonstrating resilience against inflationary pressures.

Benefiting from Negative Correlation

Jefferies' screening process identified stocks that have historically benefited from lower interest rates, particularly those with a negative correlation to the 10-year Treasury. This discovery could serve as a strategic insight for new businesses, suggesting potential areas of investment during periods of lower yields.

Spotlight on Beneficiary Stocks

Among the stocks highlighted by Jefferies, Microsoft stands out. The tech giant's shares have surged over 45% since the beginning of the year, and its recent plans to integrate an AI add-on to its Office 365 products could offer new businesses insights into leveraging AI for growth. D.R. Horton, a home construction company, and Blackstone, an alternative asset manager, also made Jefferies' list. Their performance in the face of lower yields could serve as a case study for new businesses in these sectors.

Implications for New Businesses

Jefferies' analysis underscores the potential opportunities lower Treasury yields can present. For new businesses, this could mean strategic investment in sectors that historically benefit from such conditions. As market dynamics continue to evolve, new businesses could leverage these insights to navigate their investment strategies and growth plans.
Story First Published at: https://www.cnbc.com/2023/11/03/-buy-these-stocks-that-historically-win-when-yields-fall-jefferies-says.html
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