The 10-year U.S. Treasury yield has been moving higher in recent weeks, rising to 1.578% as of this writing.
The benchmark rate has now spiked above the S&P 500’s dividend yield, which stands at around 1.43%.
As the bond market has surged, stocks have taken a hit this week with the S&P 500 shedding more than 3% since Monday.
But while stocks are down, one trader says there are two stocks that should perform well in the current environment.
“The yield curve has steepened so you want to own banks,” said Laffer Tengler Investments chief investment officer Nancy Tengler. “Out pick would be JPMorgan (NYSE: JPM). They just put in place in the fourth quarter a negative $2 billion loan loss provision. That hasn’t happened in five years and they get half their revenue from interest income and the other half from noninterest so it’s a great hedge.”
For banks, a steepening yield curve means they can borrow at a cheaper price while lending at higher rates of interest. And the stock has been on the rise as yields have pushed higher. JPMorgan shares are up more than 18% so far this year.
Analysts from the investment bank wrote in a note this week that the move higher in bond yields shouldn’t derail stocks, and advised investors to “keep using dips as buying opportunities.”
“Big picture, the phase of activity pickup is ahead of us… which should also coincide with the easing of lockdowns,” the JPMorgan analysts led by Mislave Matejka said. “We expect central banks to continue extreme accommodation, excess liquidity is peaking but it is not going away.”
Tengler added, “We also like names like BHP (NYSE: BHP). First of all, you get a high yield of 5.1% plus dividend growth, and you get the super-cycle commodity play that will benefit as the economy grows and even as a hedge against inflation.”
BHP has risen over 16% year-to-date, climbing in lockstep with crude oil.
“Lastly, we like a lot of the GARP-y [growth-at-a-reasonable-price] names, some of the big cap tech stocks that are getting sold off, I think you can step in some of those names and add the whole thing,” Tengler concluded.