JPMorgan says buy these 40 stocks set to soar as bond yields make a surprising jump higher

  • Bond yields should continue to rise, but this could remain supportive for stocks.
  • JPMorgan says financials and cyclical sectors like autos, industrials, and materials should benefit.
  • These are their 40 stock picks with the highest positive correlation to rising bond yields.
  • Visit the Business section of Insider for more stories.

Contrary to many on Wall Street, JPMorgan strategist Mislav Matejka says that bond yields have scope to move higher — and this won’t necessarily hurt equities.

Some investors are forecasting lower-for-longer interest rates, arguing that with US and German bond yields hovering near multi-month highs, there is not much further they can go. 

However, with the economy reopening following vaccine rollouts, there is potential for “overshooting given pent-up demand and continued fiscal support,” said Matejka, JPMorgan’s head of global and European equity strategy, in a note published Monday. He forecasts a 1.45% yield for the US 10-year note by year-end. Last week, the 10-year yield climbed above 1.3% for the first time since February 2020.

A common misconception is that as yields rise, stocks have to fall. But the stock market will tolerate rising rates, Matejka said, adding that since last March’s crash, equities advanced on the days when bond yields were up.

It’s not just evident in the short-term, but also historically, Matejka noted.

Even pre-COVID, equities performed well with the 10-year yield around 2%. Admittedly, company valuation multiples were lower than at present, but JPMorgan argues that the current positive growth and earnings backdrop will support equities.

This relationship between stocks and bonds should stay consistent while the 10-year yield is below 2%, especially considering the expansive central bank bond-buying programs. Therefore, during this growth phase of the economic cycle there is unlikely to be a derating of the equity market, he said.

As earnings are usually positive in the aftermath of an economic downturn, EPS momentum should also remain strong and support equity valuations, the firm added.

Moreover, the gap between equity dividend rates and government bond yields — known as the yield gap — doesn’t look stretched.

“Bond yields would need to move up by 100-200bp in order to erase the equity attractiveness,” Matejka added.

A more important factor for equities is what drives bond yields higher, rather than the levels themselves, Matejka said. Rising bond yields will be supportive of equity valuations so long as rate hikes reflect economic acceleration or optimism. For example, if a sell-off of Treasuries is caused by a so-called ‘taper tantrum’, whereby investors dump bonds on fears that central banks are slowing down purchases, this would be negative for stocks — at least in the short-term.

However, the current rise in yields is positive, JPMorgan noted, reflecting investor optimism for both economic growth and policy as more COVID-19 vaccines get administered.

Financials and other cyclical sectors like autos, industrials and materials will be the key beneficiaries of rising yields, because of their close correlation to bond yields. Whereas, pharma and staples could face a re-rating, the firm said.

These are the 40 stocks that have the most to gain due to their positive correlation to bond yields, according to JPMorgan:

1. BNP Paribas

Ticker: EPA: BNP
Sector: Financials
Market cap: €60.16 billion


Source: JPMorgan

2. Societe Generale

Ticker: EPA: GLE
Sector: Financials
Market cap: €16.95 billion


Source: JPMorgan

3. Credit Agricole

Ticker: EPA: GLE
Sector: Financials
Market cap: €32.96 billion


Source: JPMorgan

4. Renault

Ticker: EPA: RNO
Sector: Discretionary
Market cap: €11.18 billion


Source: JPMorgan

5. UniCredit

Ticker: BIT: UCG
Sector: Financials
Market cap: €18.59 billion


Source: JPMorgan

6. Arcelormittal

Ticker: AMS: MT
Sector: Materials
Market cap:€21.33 billion


Source: JPMorgan

7. CNH Industrial

Ticker: BIT: CNHI
Sector: Industrials
Market cap: €16.80 billion

Source: JPMorgan

8. Commerzbank

Ticker: ETR: CBK
Sector: Financials
Market cap: €6.67 billion

Source: JPMorgan

9. Credit Suisse Group

Ticker: SWX: CSGN
Sector: Financials
Market cap:€30.87 billion


Source: JPMorgan

10. AXA

Ticker: EPA: CS
Sector: Financials
Market cap:€47.88 billion


Source: JPMorgan

11. AEGON

Ticker: AMS: AGN
Sector: Financials
Market cap: €8.31 billion

Source: JPMorgan

12. Voestalpine

Ticker: VIE: VOE
Sector: Materials
Market cap:€5.81 billion


Source: JPMorgan

13. Deutsche Bank

Ticker: ETR: DBK
Sector: Financials
Market cap:€19.69 billion


Source: JPMorgan

14. Banco Santander

Ticker: LON: BNC
Sector: Financials
Market cap: £44.41 billion

Source: JPMorgan

15. ING Groep

Ticker: AMS: INGA
Sector: Financials
Market cap: €34.85 billion


Source: JPMorgan

16. Julius Bae Gruppe

Ticker: SWX: BAER
Sector: Financials
Market cap: $13.60 billion


Source: JPMorgan

17. Erste Group Bank

Ticker: VIE: EBS
Sector: Financials
Market cap: €11.36 billion


Source: JPMorgan

18. Adecco Group

Ticker: SWX: ADEN
Sector: Industrials
Market cap: €10.49 billion

Source: JPMorgan

19. Randstad

Ticker: AMS: RAND
Sector: Industrials
Market cap:€10.13 billion


Source: JPMorgan

20. KBC Group

Ticker: EBR: KBC
Sector: Financials
Market cap:€23.40 billion


Source: JPMorgan

21. Evraz

Ticker: LON: EVR
Sector: Materials
Market cap:£8.16 billion


Source: JPMorgan

22. NN Group

Ticker: AMS: NN
Sector: Financials
Market cap:€12.13 billion


Source: JPMorgan

23. Porsche

Ticker: ETR: PAH3
Sector: Discretionary
Market cap:9.70 billion


Source: JPMorgan

24. UBS Group

Ticker: SWX: UBSG
Sector: Financials
Market cap: €60.06 billion


Source: JPMorgan

25. Intesa SanPaolo

Ticker: BIT: ISP
Sector: Financials
Market cap: €41.14 billion


Source: JPMorgan

26. Faurecia

Ticker: EPA: EO
Sector: Discretionary
Market cap:€6.43 billion


Source: JPMorgan

27. Raiffeisen Bank Intl.

Ticker: VIE: RBI
Sector: Financials
Market cap:€5.64 billion


Source: JPMorgan

28. Exor ORD

Ticker: BIT: EXO
Sector: Financials
Market cap: €15.94 billion

Source: JPMorgan

29. BASF

Ticker: ETR: BAS
Sector: Materials
Market cap: €62.53 billion


Source: JPMorgan

30. Natixis

Ticker: EPA: KN
Sector: Financials
Market cap:€12.85 billion


Source: JPMorgan

31.Barclays

Ticker: LON: BARC
Sector: Financials
Market cap: €26.70 billion


Source: JPMorgan

32. ABB LTD

Ticker: SWX: ABBN
Sector: Industrials
Market cap:€58.67 billion


Source: JPMorgan

33. STMicroElectronics

Ticker: EPA: STM
Sector: IT
Market cap:€31.6 billion


Source: JPMorgan

34. DNB

Ticker: NO: DNB
Sector: Financials
Market cap: $30.91 billion

Source: JPMorgan

35.Siemens

Ticker: ETR: SIE
Sector: Industrials
Market cap: €112.99 billion


Source: JPMorgan

36. Daimler

Ticker: ETR: DAI
Sector: Discretionary
Market cap:€71.68 billion


Source: JPMorgan

37. Tenaris

Ticker: NYSE: TS
Sector: Energy
Market cap:$10.35 billion


Source: JPMorgan

38. HSBC Holdings

Ticker: LON: HSBA
Sector: Financials
Market cap:£86.35 billion


Source: JPMorgan

39. Rio Tinto

Ticker: ASX: RIO
Sector: Materials
Market cap: $36.03 billion
Source: JPMorgan

40. Arkema

Ticker: EPA: AKE
Sector: Materials
Market cap:€6.94 billion


Source: JPMorgan

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