Oil price and yield shock threatens: Evercore warns of a protection gap – these stocks could now be more robust

• Evercore warns of near-term pressures from oil prices and bond yields
• It becomes particularly critical if WTI oil remains above $100 and the yield on ten-year US government bonds remains above 4.5 percent
• According to Evercore, investors should focus more on low-leverage companies and avoid high-leverage stocks

Evercore warns of new protection gap

Despite ongoing geopolitical tensions, the US stock market has recovered strongly since its setback at the end of May and has reached new record levels. But as MarketWatch reports, Evercore ISI says investors have lost sight of two negative factors: rising oil prices and higher bond yields.

Both can affect stocks twice. Higher yields put valuations under pressure because bonds become more attractive again and financing costs rise. At the same time, higher oil prices are fueling concerns about inflation and putting a strain on consumers’ purchasing power. For a market that has been running strongly, this creates an environment in which even small shocks can trigger profit-taking.

According to Evercore, what is particularly tricky is that investors are currently less protected than they were in March. At that time, many market participants had bought put options on stock indices. This hedging helped prevent a deeper sell-off. Today, according to Evercore, this buffer is weaker.

Oil prices and returns become a stress test

According to Evercore’s assessment, the risks for stocks increase as long as WTI crude oil is quoted above $100 per barrel and the yield on ten-year US government bonds remains above 4.5 percent. A persistently high oil price could become a particular problem for consumers because rising gasoline costs put an enormous strain on purchasing power.

According to Business Insider, Emanuel sees the risk that the US economy could come under greater pressure around July 4th if oil prices remain high. If oil remains in the range of $93 to $98 or above, the effect on consumers and markets could become increasingly noticeable. According to Business Insider, Evercore cites a year-end target of 7,750 points for the S&P 500 and a short-term setback risk of up to 6,780 points.

Why companies with low debt are now more attractive

Evercore’s central idea for action is therefore not an escape from stocks, but rather a different weighting. As MarketWatch reports, Evercore recommends becoming more cautious about high-run, low-defense stocks and instead sticking with its long-standing preference for low-leverage companies.

The reason: Rising interest rates hit companies with high levels of debt particularly hard. Refinancing becomes more expensive, margins come under pressure and weaker profit revisions can increase valuation pressure. Specifically, Evercore recommends screening companies with low debt, positive sales and earnings revisions, and a market capitalization of more than $500 million.

The so-called “low leverage leaders” include, for example, the shares of the tech companies Alphabet and Palantir, beverage manufacturer Monster Beverage, quantum computing company IonQ and ON Semiconductor and many other stocks.

What does this mean for investors now?

For investors, the real issue is not just the price of oil or the yield on 10-year US Treasury bonds. The decisive factor is the combination of high valuations, low protection and possible pressure on consumers. This is exactly why the quality of the balance sheet can become a stronger selection criterion again.

According to Evercore logic, anyone who wants to check their portfolio for shock resistance should ask two questions in particular: Which companies can easily bear higher financing costs? And which stocks are heavily dependent on growth, margins and consumer sentiment remaining stable at the same time? Low-leverage companies with robust audits could provide a better buffer in this environment. Highly indebted stocks with declining earnings momentum, on the other hand, quickly become risks.

Benedict Kurschat, editorial team at finanzen.net

This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.

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