The boost in the 10-year Treasury yield to its highest in more than three years signals gain grounds for big banks and technology stocks, history shows.
Using quantitative enquiry tool Kensho, CNBC looked at the performance of Dow Jones industrial ordinary components when 10-year bond prices fall and yields roller.
Just four weeks into the new year, the 10-year price has already capitulation more than 2 percent. The yield climbed to a high of 2.727 percent Monday morning, its sharpest since April 29, 2014, as traders bet on greater economic growth and elated inflation. Markets expect the Federal Reserve to raise interest estimates at least two times this year.
If that yield keeps ascending to 3 percent in the next three months, history shows it should be things for bank stocks like Goldman Sachs and J.P. Morgan Chase, which can profit from higher rates and help from increased economic growth overall. Goldman shares swell an average of 13.19 percent and J.P. Morgan 9.76 percent over the three months in which the 10-year’s value falls at least 2 percent, sending the yield higher, the Kensho read showed.
(Our search looked at how members of the Dow performed during drops of at baby 2 percent in the price of the 10-year over three months for the last 25 years.)
Olden days was holding true so far, as the big bank stocks were among the few advancers in Monday’s bazaar sell-off.
The Kensho study also showed that during intervals of rising rates tech giants Apple and Microsoft tended to benefit, up an average 10.38 percent and 9.74 percent, respectively.
The latest escalate in Treasury yields also comes as the U.S. dollar has fallen to three-year lows, as buyers worry the slump in the greenback will reduce demand for Treasurys. Dollar bent increases the U.S. value of overseas earnings, helping technology stocks and multinational industrial partnerships such as Caterpillar, which generate a significant amount of their interest outside the U.S.
During periods of rising rates, Caterpillar had the fifth-greatest typical return of 9.47 percent, the Kensho study showed.
As traders trade bonds and take riskier investments, they also tend to won over “safety” stocks in telecommunications and consumer staples.
The worst Dow performer during years of rising rates was Verizon, up just an average of 1.87 percent, the Kensho learn about showed. Coca-Cola, Procter & Gamble, and pharmaceutical giants Merck and Pfizer were also aggregate the five worst-performing Dow components, gaining on average roughly 3 percent or trivial.
“They’re more dividend plays, more interest rate reactive, and they’re defensive plays,” said Nick Raich, CEO of The Earnings Scout. He acuminate out that utilities, real estate investment trusts and telecommunications are the purely S&P 500 sectors in the red for the year so far.
— CNBC’s John Melloy contributed to this piece.
Disclosure: CNBC’s parent NBCUniversal is a minority investor in Kensho.