These stocks benefit the most when short-term rates slide, according to Jefferies

Published Wed, Mar 15 20232:08 PM EDT

As short-term rates slide on the back of the banking crisis, a handful of stocks — including chip names —will emerge winners, according to Jefferies. "If history is a guide then the recent financial perturbations will have been enough to choke lending conditions as MM & credit spreads have shifted. Hence, the Fed will finally get what it wants — a soft recession/slowdown," strategist Sean Darby said to clients in a Wednesday note. "The 2-year yield trades below the Fed Funds target for the first time since tightening began – we remain long beneficiaries of the yield curve shifting downwards," Darby said. The strategist noted the steep drop in the 2-year yield is pointing to worsening economic conditions. On Wednesday, the 2-year yield fell as low as 3.72%. This was the lowest level since Sept.13, 2022, when the yield fell as low as 3.505%. Meanwhile, the yield on the benchmark 10-year note breached 3.388%. That's its lowest level since Feb. 3 when the 10-year yielded as low as 3.365%. "Our US recession probability indicator appears ready to move up exponentially – not too dissimilar to other cycles," Darby wrote. Still, there are stocks that benefit from falling short- and long-term yields. Indeed, the names Jefferies highlighted are largely tech and growth stocks – that is, companies that suffered the most when interest rates rose and slashed their valuations. They would stand to gain if rates drop. Jefferies called out Tesla in its list. Shares of the EV maker cratered 65% in 2022 as the Federal Reserve embarked on its latest rate-hiking campaign. A falling rate environment could buoy shares, which are up about 44% in 2023. The firm rates Tesla a buy. Semiconductor stocks Lam Research and Advanced Micro Devices were also included in the list. Shares of both names skidded in 2022, with Lam dropping about 41% and AMD shedding nearly 55%. Jefferies rated both stocks as buy. Lam is up nearly 14% in 2023, while AMD has gained 35%. Paycom Software and aerospace name TransDigm Group were also highlighted in Jefferies' report as beneficiaries of a falling 2-year Treasury yield. Shares of both names are rated buy. Paycom is off 10% in 2023, while TransDigm is up more than 9%. - CNBC's Michael Bloom contributed to this report.