While surging bond yields have kept equity investors on edge, Goldman Sachs found a basket of companies that benefit most from rising interest rates. That group has returned more than 20% this year. The 10-year Treasury yield climbed to a fresh 13-month high of 1.67% on Wednesday, extending its recent advance on economic recovery optimism and rising inflation expectations. The 30-year rate also jumped to 2.428%, its highest level since November 2019. Higher rates can diminish the value of future cash flows, hurting growth-oriented companies particularly hard. To find the stocks that have the opposite impact from higher rates, Goldman created a "rate sensitive basket," which consists of 50 S & P 500 stocks with the highest stock price sensitivity to changes in 10-year Treasury yield. That means these stocks' prices will move higher when the benchmark yield climbs. The level of sensitivity is measured as each stock's beta to changes in the 10-year Treasury yield after accounting for its sensitivity to the S & P 500, Goldman said. Beta indicates how volatile a stock's price is in comparison to the overall stock market. The basket is up 22% year to date, compared to a 5.5% gain for the S & P 500. The tech-heavy Nasdaq Composite is up 4.5% this year. Goldman's portfolio includes a number of financial names. Financials like banks, brokerage firms and asset managers are typically the most sensitive to higher rates as their profit margins increase with higher interest rates. Meanwhile, rising yields mean that banks can earn more from the gap between what they pay to savers in interest and what they can earn from government bonds. Furthermore, brokerages tend to experience more investment activity when rates increase amid a healthier economy. The stocks in the sector highlighted by Goldman are SVB Financial , People's United Financial, Raymond James Financial, Charles Schwab and Zions Bancorp. The S & P 500 financial sector has been a big outperformer this year with a 16% gain so far. The basket also contains a few retailers — Gap , Hanesbrands and Tapestry. Retailers tend to see outsized benefit from the economic reopening as consumers return to stores. Classic reopening play American Airlines is also on the list. The airline stock has rebounded 55% this year. Energy names Marathon Oil and NOV Inc. are also included in the basket. The energy sector is the biggest winner this year by far as investors flocked into the beaten-down cyclical group amid recovery optimism. The sector has gained 35% year to date.
Traders on the floor of the New York Stock Exchange.
While surging bond yields have kept equity investors on edge, Goldman Sachs found a basket of companies that benefit most from rising interest rates.
That group has returned more than 20% this year.