BMO says stocks can do just fine at times of high rates — especially these cash kings

Published Thu, Sep 14 20231:45 PM EDTUpdated Thu, Sep 14 20231:56 PM EDT

Wall Street is becoming more comfortable with the story line that interest rates are set to remain higher for longer, according to BMO Capital Markets. The latest consumer price index report for August showed stickier-than-expected core inflation, raising concerns that the Federal Reserve might impose another quarter point interest rate hike before the end of the year, further delaying an eventual easing in credit policy. While often thought of as a death knell for equities, BMO's chief investment strategist Brian Belski posits that the prospect of higher interest rates won't entirely upend stock prices. Instead, he says, investors need to be pickier and should eye businesses with less leverage and strong free cash flow. "Nonetheless, not all areas of the market are created equal within the context of higher interest rates," Belski said. "Thus, we believe it is important for investors to maintain an active approach when making decisions because certain strategies can provide better outperformance opportunities than others." In tech, chipmaker AMD and software company Adobe made a BMO list of possible outperformers in a high-rate environment. Shares of Adobe have soared more than 64% since the start of the year, while AMD has climbed 66%. Adobe is set to report quarterly results after market close Thursday, with analysts polled by FactSet estimating an adjusted $3.98 per share on $4.8 billion in revenue. ADBE YTD mountain Adobe will report quarterly results after the closing bell on Thursday. San Ramon, California-based oil titan Chevron is benefiting from higher energy prices, with U.S. crude reaching its highest level since November 2022 on Thursday . Shares of Chevron have slipped about 7% from the start of the year. Customer relations management software firm Salesforce recently beat earnings expectations on both the top and bottom line , and also provided higher forward guidance due to the continued growth of artificial intelligence. Shares of Salesforce have surged more than 65% from the start of the year. CRM YTD mountain Salesforce stock. — CNBC's Michael Bloom contributed to this report.