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For those investors betting that inflation is cooling and rates will fall, there are some stocks that could benefit from that trend.
The consumer price index rose just 0.1% in March on a month-over-month basis. Economists polled by Dow Jones expected a 0.2% increase. Core inflation, which strips out volatile food and energy prices, increased about in line with expectations.
Treasury yields dropped on the back of the report. The 2-year Treasury rate slid 6 basis points to 3.739%. The 1-year and 3-year yields were also down on the day. Yields move inversely to prices.
Given this backdrop, CNBC Pro screened for Nasdaq-100 stocks that are correlated to the iShares 1-3 Year Treasury Bond ETF (SHY), which tracks moves on 1-, 2- and 3-year Treasury notes. More specifically, we looked at the rolling 100-day correlation between Nasdaq-100 stocks and the SHY ETF.
Here are the five-most correlated Nasdaq-100 stocks to falling rates.
Nasdaq-100 stocks correlated to SHY
| Ticker | Company Name | Rolling 100-day correlation | Average correlation going back to 2015 |
|---|---|---|---|
| ILMN | Illumina, Inc. | 0.35 | -0.06 |
| XEL | Xcel Energy Inc. | 0.32 | 0.19 |
| SGEN | Seagen, Inc. | 0.28 | -0.04 |
| AEP | American Electric Power Company, Inc. | 0.26 | 0.19 |
| AMGN | Amgen Inc. | 0.25 | -0.11 |
Source: CNBC Pro analysis
Biotech firm Illumina has the strongest correlation at a coefficient of 0.35. In other words, a 1% gain on the SHY is associated with a 0.35% gain on the stock. Illumina shares have been on fire this year, popping more than 13%. To be sure, the stock’s average correlation going back to 2015 is relatively flat.
Also on the list is American Electric Power, with a correlation coefficient of 0.26. The utility stock is flat for the year, but it has jumped 15% over the past six months. American Electric’s correlation going back to 2015 came in at 0.19.
American Electric Power has declined slightly from the start of the year, with shares remaining roughly flat.
Shares of Seagan are one of the more closely correlated stocks of the iShares short-term bond yield ETF.
The Nasdaq-100 and the SHY were highly correlated to start the year, with a coefficient well above 0.4. However, that correlation has fallen in recent weeks to around 0.2, as uncertainty remains over the Federal Reserve’s forward path on inflation as it tries to rein in price pressures back down to its 2% target.
Additionally, correlations don’t always hold up, and idiosyncratic drivers for each stock could play a bigger roll in how they trade.
Still, if inflation does fall and short-term rates decline, these stocks could see some gains.
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