As September begins with market uncertainty, Evercore ISI suggests investors consider ‘negative beta’ stocks as a hedge against volatility. These stocks historically move counter to the broader market, potentially cushioning portfolios during turbulent times.
Sectors like Energy, Financials, Consumer Staples, and Utilities feature prominently in Evercore’s list, with specific mentions of Occidental Petroleum and Chevron for their inverse market correlation.
As September gets underway, investors are bracing for potential market turbulence. Stocks have experienced a shaky start to the month, with the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average snapping a recent three-day decline attributed partly to elevated bond yields. In response to this volatility, Evercore ISI has identified a specific group of stocks that have historically moved in opposition to the broader market, offering a potential hedge against upcoming market swings.
Investors are looking for ways to navigate choppy market conditions.
Evercore ISI strategists, led by Julian Emanuel, highlighted the benefits of investing in 'negative beta' stocks. These are companies within the S&P 500 whose daily price movements over the past six months have shown a tendency to move opposite to the overall index. The firm's research identified 115 such stocks for September, a slight decrease from 121 in August. From this list, Evercore ISI has pinpointed the top 20 stocks with the most pronounced negative betas.
The analysis revealed that sectors such as Financials, Utilities, Consumer Staples, and Energy represent a significant portion, nearly 70%, of these top-performing negative beta stocks. Energy stocks, in particular, were noted for their inverse relationship with oil prices, with Evercore ISI describing the sector as a "synthetic S&P 500 put option" due to geopolitical pressures that can influence the broader market.
Among the highlighted energy companies, Occidental Petroleum stands out. The oil and gas producer recorded a six-month beta of -1.23, making it one of the most negatively correlated stocks among Evercore's top 20. Analyst Stephen Richardson has an 'outperform' rating on Occidental, citing the company's strong second-quarter performance, which included $3 billion in free cash flow and a significant debt reduction of $1.9 billion. Another notable energy major, Chevron, with a beta of -0.90, is also recommended with an 'outperform' rating by Richardson. The company recently announced plans to substantially increase its production in Venezuela, signaling confidence in future energy demand.
Stabilizing yields offer a brief respite, but caution remains.
In the consumer staples sector, defensive stocks like supermarket chain Kroger and tobacco maker Altria were also mentioned by Evercore ISI as potential hedges against market volatility. These companies, known for their consistent demand regardless of economic conditions, can provide a stabilizing influence in uncertain times.
Evercore ISI's strategy emphasizes that incorporating negative beta stocks can help long-term oriented portfolios better withstand periods of heightened volatility, which could be triggered by factors such as interest rate changes, geopolitical events, and upcoming midterm elections.
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