After strong jobs report, finding winners when rates rise

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After being consistently wrong about the direction of interest rates for the last two years, the consensus on Wall Street finally settled for a low-rate outlook for 2015.

But just as most are positioned for low yields, is it time to consider buying stocks that benefit when rates rise?

Nonfarm payrolls in January increased by 257,000, better than the 235,000 expected by economists. The initial December and November payroll reports were revised much higher.

The 10-year yield jumped by 3 percent just after the report to 1.88 percent, bringing its run from a week ago to 14 percent when the yield was at 1.64 percent.

To be sure, yields are still at their lowest levels in almost two years, but they don't ring a bell at the bottom, and if the trend is now higher from here, the stock and sector winners in the market will look much different than what they've been over the last year.

Using Kensho, a quantitative analytics tool, searched for the stocks that rose or fell significantly 30 days following a five-day uptick in rates. Over the last 10 years, a period when low rates has been the lifeline for the market, there have been five such occasions.

First, a review of the rising-rates losers. Shares of Whirlpool, the appliance maker whose sales depend on easy credit for consumers, fell 8 percent, on average, in that period following a rate surge.

Companies that sell commodities or sell to the materials industry, including Joy Global, ConocoPhillips and Dow Chemical, were notable losers.

If rising rates outweigh the economic growth they are signifying, commodity prices could remain low.

Citigroup, which could stand to lose money as rising rates bring defaults on consumer and finance debt, also tended to fall.

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And while most strategists will tell you rising rates are a sign of a strong economy and not bad for the market, over the last 10 years, when rates surge, the S&P 500 on average was 1 percent lower 30 days later.

This may explain the muted response by stocks Friday after this strong January jobs report. Low rates and an easy Federal Reserve has been the fuel for the previous two bull markets.

But there are rising rate winners as well. American International Group, which can charge higher rates for insurance policies and get higher rates of return on its cash float, jumped 39 percent, on average, in the 30-day period following a rate surge.

Also from the insurance world, XL Group gained 19 percent on average 30 days after a one-week yield increase like the one we've just seen.

Carmax, which will be able to charge more for auto financing, jumped 18 percent following an interest rate advance.

Some higher-end retailers, whose customers keep spending in tighter credit environments, were winners as well. Whole Foods and Starbucks were two that stand out.

Utility stocks, whose dividends look less attractive as bond yields rise, were the biggest market losers Friday morning. Their 1 percent decline pushed the sector from the top slot to the second among winning market sectors of the last 12 months, behind health care.

The group is still up 24 percent over the last year, but that may be hard to replicate over the next year if rates give investors an alternative to the power generators' hefty dividend yields.

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The chance of a Fed rate increase by March increased to 54 percent after the jobs report Friday, according to the CME's interest rate futures. The chances of a March surprise a month ago was at 48 percent.

Many Wall Street strategists have been expecting a rate increase by the Fed much later in the year. Morgan Stanley believes chances are the Fed will wait until 2016. Much like one's sector and stock picks, the bond market may be forcing a change in that strategy.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.