As investors eye their positions based on the Fed’s rate hike path, some names stand out as winners – depending on the direction the central bank takes. The Fed is widely expected to increase its benchmark borrowing rate by a quarter of a percentage point on Wednesday, reaching its target range between 5% and 5.25%. What investors are focusing on is whether the central bank is signaling that it is leaving the door open for further increases or that it is over. If the Fed chooses to pause, Treasury yields are expected to decline. Yields and prices move inversely to each other. The two-year Treasury is the most sensitive to the Fed’s monetary policy. With that in mind, CNBC Pro examined the stocks most sensitive to rates. We looked at the 100-day relationship between each S&P 500 stock and the iShares 1-3 Year Treasury Bond ETF (SHY), which tracks the value of Treasurys from 1 year to 3 years. A rise in SHY indicates a fall in short-term interest rates, and vice versa. Stocks That Could Gain As Interest Rates Fall Here are the top stocks that are poised to rally if the Fed signals that it will pause price increases. Newmont has the highest 100-day rolling correlation with SHY, which means that if the ETF moves higher, the stock will likely follow. Since yields move opposite to rates, the fund will rise if interest rates fall. The gold miner benefits from higher gold prices, and gold in general tends to go up when interest rates fall. The precious metal, known as an inflation hedge, hovered above $2,000 on Wednesday, a key level for investors. Shares of Newmont are up nearly 2% this year. Several energy names are also on the list, with WEC Energy and Xcel Energy leading the sector tie. WEC Energy has gained about 1.6% year-to-date, while Xcel Energy has lost 1.4%. Meanwhile, genetics company Illumina should gain if interest rates fall, according to its affiliation with the SHY ETF. Illumina is locked in a proxy battle with activist investor Carl Icahn over its acquisition of cancer test developer Grail. Icahn, who owns a 1.4% stake in the company, criticized the company’s “extremely disappointing” first-quarter results and its cost-cutting plans. In an open letter to shareholders, Icahn said CEO Francis D’Souza was “desperate, terrified and, most of all, unsuccessfully trying” to spin “decidedly mediocre” quarterly results. Illumina reported quarterly revenue of $1.09 billion, beating the $1.07 billion expected by analysts polled by StreetAccount. Adjusted earnings per share came in at 8 cents, above the 1 percent per share expected. However, the company’s net income of $3 million for the quarter fell more than 96% from $86 million from the year-ago period. Stocks are set to rise with interest rate increases. However, if the Fed suggests that rate hikes continue, short-term Treasury yields are likely to rise, benefiting these stocks. Comerica has the largest 100-day rolling negative correlation with the SHY ETF, and therefore could be one of the biggest beneficiaries of higher interest rates. Several regional banks are on the list, including KeyCorp, Huntington Bancshares, and Fifth Third Bancorp. Banks profit when interest rates rise. However, regional banks have been choppy since the collapse of the Silicon Valley bank sparked concerns about their health. Selling in the sector continued this week after regulators acquired First Republic on Monday and JPMorgan Chase won the auction for nearly all of its deposits and most of its assets. “There are too many banks that have been infiltrated in this way,” JPMorgan CEO Jamie Dimon said on a call with analysts after the deal was announced. “There may be another one that’s smaller, but this pretty much solves them all,” he added. “This part of the crisis is over.” SBDR S&P Regional Banking has lost 38% so far this year.
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