Merrill Lynch Nervous About Rate Hike and Summer Shock: 4 Stocks That Could Benefit

We have written in depth about the catalysts coming this summer that could be very disconcerting for the stock market, and with the indexes pressing again close to the highs of last summer, it may be smart to consider the possibilities. With a potential Federal Reserve rate increase in June or July, a vote on whether Great Britain leaves the European Union, and a summer chock full of political hyperbole leading up to the party conventions, which could themselves be raucous, volatility could jump.

In a new research note from Merrill Lynch and the firm’s superb strategist Savita Subramanian, they pretty much stay with their bearish stance that they have had most of 2016. They note the items mentioned above as possible summer shocks, and they are predicting a W-shaped recovery, which could mean another leg down for oil and stocks that have remained highly correlated to the sector.

The report points to a group of sectors that the Merrill team believe are already cheap and will do well in a hawkish rate environment. We screened the sectors for stocks rated Buy at Merrill Lynch that also pay good dividends.


Air freight and logistics do well in a tightening environment, and this company is the gold standard. FedEx Corp. (NYSE: FDX) provides transportation, e-commerce and business services in the United States and internationally. Its FedEx Express segment provides various shipping services for the delivery of packages and freight. The FedEx Ground segment provides business and residential money-back guaranteed ground package delivery services, and it consolidates and delivers high volumes of low-weight and less time-sensitive business-to-consumer packages. The FedEx Freight segment offers less-than-truckload freight services, as well as freight-shipping services.

The air and road freight giant posted outstanding first-quarter results and the Express segment posted astounding 9% margins that came in higher than even the Merrill Lynch estimates. Toss in an ongoing $1 billion share buyback program, and the potential for the company remains outstanding.

FedEx investors receive a 0.61% dividend. The Merrill Lynch price objective is $170, and the Thomson/First Call consensus is higher at $178.39. The stock closed last Friday at $164.47.

Goldman Sachs

This company continues to be the gold standard of Wall Street banks and trades at a low 11.2 times estimated 2016 earnings. Goldman Sachs Group Inc. (NYSE: GS) has a gigantic institutional equity, debt and derivatives business, an ultra high net worth clientele, top investment banking and capital markets expertise. The bank continues to be a dominant force around the world and is one of the most sought after in the world. And it is one of the very few that dictate who can be a client at the firm.

In investment banking, the company has the preeminent client franchise. Goldman Sachs advised on more than $1.5 trillion of announced mergers and acquisitions transactions last year, the highest level the bank has ever recorded. It also has maintained a leading market share over the past 25 years. It maintained a market position when merger and acquisition activity was dominated by technology in 1999, by financials in 2008 and by natural resources in 2014. The bottom line is, regardless of where market strength is in any given year, Goldman Sachs is up to the task.

Goldman Sachs shareholders receive a 1.63% dividend. Merrill Lynch has a $185 price target for the stock, and the consensus target is $189.39. The stock closed Friday at $159.53.