A 10-year Treasury yield above 5% is enough to get investors’ attention. But one number rarely captures the whole story.

The last time yields reached these levels, in October 2023, many of the same concerns were front and center. Yet equities went on to navigate that higher-rate environment successfully.

As long as the economic backdrop, labor market, and earnings growth remain resilient, we believe this bull market can continue.

Catch Lizzie’s conversation with Charles Payne on Fox Business for more insights on the current markets below.

 

Transcript:

What’s going on in the markets?

Charles: Well, so, the last time my next guest was in studio right here, she was on a show, the market was at an all-time high. It’s down about 3% since then, but, golly, it feels like a lot more, right? So, what’s going on? And more importantly, how do we take advantage? Let’s bring in Evans May Wealth Managing Partner Elizabeth Evans.

First of all, what’s going on? I mean, listen, I mean, we got the AI fears. We have the data center fears. We got the Federal Reserve looming large. But I just can’t believe to what the degree that they’re overshadowing all the great fundamental news we’ve had.

Elizabeth: Good afternoon, Charles. You couldn’t be more right. Gosh, it’s amazing that the list of concerns continues to mount.

And don’t forget the the most recent AI rhetoric that AI is going to kill us all. But if we think about what typically happens in September, we know September is historically a bad month for the market. Over the last five years, on average, the S&P 500 pulls back 2.68%. So, as you mentioned, we’re 3%, about 3% off the all-time high.

So, could it be that the market is pulling forward the volatility that we typically see in September by a few weeks. We think it’s certainly possible. And overall, the market is consolidating. It is not correcting despite the growing list of correction concerns.

How worried are you that 10YR Treasury yields are getting out of control?

Charles: So, the seasonality part we get and typically in a midterm election year it’s even worse than that.

So maybe you’re right. Maybe we should be looking at this as glass half full. It could be a lot worse. And maybe the fundamental news has been the sort of thing holding us up. But there was a time, for instance, if the 10-year yield hit 4.5%, I can remember not long ago that was a number that destroyed the market.

Everyone ran for the exits. Now, we’re over, over five. We’re not rallying, but we’re not, we’re not collapsing either. We’re not seeing massive fear. You’re sort of a conservative investor. How worried are you that they’re getting, these rates are getting out of control?

Elizabeth: Yeah. I think the the two biggest short-term risks to the market are certainly treasury yields.
And 5% that we’ve hit this week is the highest level we’ve had in three years. But importantly, if we go back to October of 2023, when we last were at 5%, if you zoom out, the 10-year Treasury yield has actually been really trading within that range. And think about what the equity markets have done over the last three years.

So, I do believe that equities can sustain higher yields so long as the economic backdrop remains positive, the labor market remains intact and earnings growth continues to be as strong as we’ve seen.

Stock Picks:

Walmart: You like this weakness as a buying opportunity?

Charles: All right, let’s talk about making some money. You like Walmart here. You know, Walmart was a juggernaut. And I mean at one point it was trading at this really huge PE ratio.

And it’s starting to give some of that back. You like this weakness as a buying opportunity?

Elizabeth: I do. It’s been, really, it’s really pulled back since its earnings report. And I think the sell off is not warranted with the underlying fundamentals. So, you’re close to 20% off the 52-week high. Walmart has moved from a low-margin discount retailer to a much more productive ecosystem.

So, you look at advertising revenue, subscriptions, marketplace, that’s more than a third of their operating income. And that’s growing at 30% year-over-year. So, I think this is a buy the dip opportunity.

Eli Lilly

Charles: You like Eli Lilly, it’s hard to find someone who doesn’t like Eli Lilly these days.

Elizabeth: I do. You know, they’ve absolutely crushed it in obesity. You just saw Mounjaro. The international sales are now exceeding domestic. So, the total addressable market continues to expand. But there’s so much more in their pipeline.

They’re at a 30x forward P/E multiple, which still is a discount to its own historical valuation at 40x. And there’s a nice support level here, Charles, at $1,100. So, we saw that support level tested three times since June.

So, I think this is a good entry point and one of the best leaders for structural growth in health care.

MP Materials

Charles: I got less than a minute to go, but I was a little surprised when you told me you like MP Materials, right? I mean, MP Materials, rocketed. The administration putting a lot of money into this, making sure America can compete with the rest of the world, particularly China.

It’s given half of that rally back. And you like it here?

Elizabeth: I do. This was a stock that was actually brought to us by a client. And it is the only, American fully integrated rare-earths producer. So, what’s interesting here is in July, the Department of Defense struck a deal with MP, where NdPr is now, they’ve provided a floor at $110.

So, the company still participates in the upside. But if you look at the forward multiple on EBITDA, it’s at 17x. So, we believe that the valuation does not fully appreciate the downside protection that’s now been provided by the Department of Defense. So, execution is still a risk here. But if they are able to execute I think you’ll see the valuation gap up.

Charles: All right. Great stuff. Elizabeth Evans, talk to you again real soon.

Elizabeth: Thank you, Charles.