These stocks could be the hardest hit if Treasury yields don't come down, says Piper Sandler
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Treasury yields have begun to jump again as the market grapples with the possibility of fewer rate cuts from the Federal Reserve than it had expected in March. If higher Treasury yields persist, Piper Sandler believes certain stocks could see their earnings at risk. After hawkish comments from Fed Chair Jerome Powell, markets are now pricing in just a 19.5% chance of a rate hike in March, compared to more than a 68% chance at the start of 2024. The yield on the 10-year Treasury rose as high as 4.16% on Monday after hitting a low around 3.8% last week. The 10-year Treasury was last hovering at the 4.09% level. Investors have been anxious about when the Fed will start to lower rates. With this in mind, Piper Sandler screened for stocks in the Russell 1000 that could be hurt the most by higher yields. The firm looked for stocks with a high correlation to the 10-year Treasury yield and downbeat earnings revisions, based on a proprietary EPS revisions ratio. Take a look at the stocks Piper Sandler thinks are at risk if yields continue to stay elevated, and where analysts on Wall Street think they’re headed from here. Financial stocks comprised the largest sector represented in Piper Sandler’s list. Financial services giant Charles Schwab and Bank of America were among the names featured. Bank of America and Charles Schwab have correlation values of 0.517 and 0.467 to the 10-year yield, respectively. Charles Schwab has an earnings per share revision ratio of -0.627, versus Bank of America’s revisions ratio value of -0.365. Shares of both the large-cap financial names are negative for the year, but analysts remain bullish. Around 57% of analysts covering Bank of America rate it a buy or strong buy, as well as nearly 62% of analysts covering Charles Schwab, according to LSEG. Both compares are estimated to have about 14% upside potential from current levels, per consensus price targets from LSEG. Another financial name on the list was regional bank East West Bancorp . The company has a 0.438 correlation with the 10-year yield with a revisions ratio of -0.407, according to Kantrowitz. While the smaller-cap bank recently posted a quarterly earnings miss, the majority of analysts covering shares have issued a buy or strong buy rating. They also estimate shares could rally nearly 20% from here. East West Bancorp shares are down 4.9% in 2024. EWBC YTD mountain East West Bancorp in 2024 The only energy company included in the screener was Marathon Oil . As the energy sector continues to underperform the S & P 500 in 2024 — up just 0.4% compared with 3.9% for the S & P 500 — Marathon Oil has lagged even more, losing around 6% in the same period. But the stock could be due for a turnaround. Analysts polled by LSEG forecast shares surging 37.3%. Around three-fifths of analysts covering the oil company rate it a buy or a strong buy. Pharmaceutical stock Bristol-Myers Squibb has a comparatively lower correlation value of 0.188 to the 10-year yield. Its earnings revision ratio is -0.513. The stock fell to a new 52-week low during Tuesday’s trading session after Redburn Atlantic Equities downgraded shares to neutral to buy, citing no near-term positive catalysts ahead for Bristol-Myers Squibb. Redburn Atlantic isn’t the only firm stepping to the sidelines on the stock — almost 70% of analysts covering Bristol-Myers Squibb have a hold rating. Shares are down 4% year to date, but the average analyst price target indicates shares could gain 17.7% from their current levels, according to LSEG.
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