Certain stocks that show a larger than usual sensitivity to declines in short-term interest rates could take off if the Federal Reserve cuts again on Wednesday and signals more easing is ahead. If history repeats itself, names like Blackstone and AvalonBay Communities should rally into year-end. The central bank’s movement of its overnight benchmark influences short-term rates directly, so CNBC PRO looked to identify the stocks that move the most off changes in the 2-year Treasury yield. So far, the Fed’s rate cut last month and indications by central bank members that it would lower again this month have caused the 2-year Treasury yield to decline significantly this year. US2Y YTD mountain U.S. 2-year Treasury yield, YTD So for our search, we looked at the biggest moves lower by the 2-year yield on a monthly basis over the last five years. We then searched for the S & P 500 stocks that gained the most during those months of falling rates. It revealed a large group of names with some obvious rate-sensitivity and some where the link is not exactly clear. Here are the top 25 best performers during months of declining rates, ranked by their median up-move. To be sure, this is a rather small sample size so some could be anomalies. But you do see a clear picture emerge of the kinds of stocks that should get a tailwind from the Fed, if this is not already priced into the stocks. Stephen Schwarzman’s Blackstone makes the list and should see lower rates boost its real estate and credit holdings. Homebuilder Lennar could get a lift as economy ticks up and financing gets easier for potential homeowners. Rental property owner AvalonBay will make more on the spread between the rate it rents apartments out and the rate it finances the properties. Carrier Global should see more air conditioners installed as building picks up. Equifax should see more demand for its credit check business as lending grows. For some on the list, the benefit is unclear, but could have something to do with risk-taking picking up in the stock market. Stocks linked to the biotech industry like Revvity and Waters Corp come to mind. To be sure, market history doesn’t always repeat or this game would be a lot easier. It’s possible the Fed may signal it’s not quite as willing to cut rates for a third time this year in December. That could cause short-term rates to increase. But the markets are expecting the Fed to signal more easing is ahead, if not again in December, but early next year. If that’s the case, then short-term rates should fall further and these stocks should benefit.
