Buy these stocks that historically win when yields fall, Jefferies says

Published Fri, Nov 3 20239:15 AM EDTUpdated Wed, Nov 8 20231:40 PM EST

Lower Treasury yields could be good news for some stocks on Wall Street, according to Jefferies Equity Research. The Federal Reserve on Wednesday kept benchmark interest rates unchanged at a second-consecutive meeting. Stocks soared on the news, even as Fed Chair Jerome Powell insisted that efforts to tame persistent inflation have further to go. Treasury yields pulled back after the November Federal Open Market Committee decision, with the benchmark 10-year note falling 15 basis points. Interest rate declines were also aided by fresh data that suggested inflation is cooling further. Labor costs fell 0.8% in the third quarter, while economists polled by Dow Jones forecast 0.7%. With interest rates now seemingly on the backfoot, Jefferies screened for stocks with a negative correlation to the 10-year Treasury — meaning they historically benefit from lower interest rates. "While stocks with negative correlation to U.S. bond yields have underperformed in 2H23, they might witness mean reversion if yields stop rising," Jefferies global head of quantitative strategy Desh Peramunetilleke wrote in a Wednesday note. Jefferies' screen used the following criteria: Companies on the list have a market cap of at least $4 billion. Stocks have a negative correlation to U.S. bond yields, notably 5- and 10-year yields. Tech behemoth Microsoft is one of the outstanding beneficiaries to a decline in the 10-year. Shares have climbed more than 45% from the start of the year. MSFT YTD mountain Microsoft stock. The company recently announced plans to integrate an artificial intelligence add-on to its Office 365 products, with a specific focus on businesses. Piper Sandler estimated that the revenue from the add-on subscription fee could amount to more than $10 billion by 2026. Home construction company D.R. Horton also made the list. Shares have added nearly 29% from the start of the year. Both Wells Fargo and Goldman Sachs recently upgraded D.R. Horton, citing the company's shift to focus on volume. DHI YTD mountain D.R. Horton stock. Elsewhere, alternative asset manager Blackstone also made Jefferies' screen. Shares have climbed more than 30% from the start of 2023. BX YTD mountain Blackstone stock. Blackstone and Vista Equity Partners recently agreed to buy renewable energy software provider Energy Exemplar in Blackstone's latest bet on companies tied to the clean energy transition. — CNBC's Michael Bloom contributed reporting. Correction: This story has been updated to show that Blackstone has agreed to buy Energy Exemplar in a deal that has not yet closed, and that Vista Equity Partners is investing alongside Blackstone.