Evercore ISI flags negative-beta S&P 500 stocks as September volatility hedge

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Highlights

Evercore ISI's September screen identifies 115 negative-beta stocks, with financials, utilities, consumer staples, and energy comprising nearly 70% of top picks.
Occidental Petroleum posts $3 billion free cash flow before working capital in Q2, reduces debt by $1.9 billion to $11.8 billion, and has a six-month beta of negative 1.23.
Chevron, rated outperform by Evercore ISI, announces a $7 billion plan to double Venezuelan output to 600,000 barrels per day by 2031 from 280,000 currently.

September screen highlights defensive stock picks

As reported by CNBC, Evercore ISI says investors can use negative-beta stocks, shares that have tended to move opposite the S&P 500 over the past six months, to help ride out volatility events. Strategists led by Julian Emanuel write that the firm's September screen identifies 115 such stocks, down from 121 in August, before narrowing the list to its top 20 names.

Evercore ISI says financials, utilities, consumer staples and energy make up nearly 70% of the stocks that rank highest on the screen. The firm argues energy stocks can act like a synthetic S&P 500 put option because oil price moves and geopolitical pressure often cut against broader market sentiment.

The note comes as traders weigh the inflation impact of higher oil prices and elevated bond yields. On Wednesday, the S&P 500, Nasdaq Composite and Dow Jones Industrial Average snap a three-day decline that had been driven in part by rising yields.

Energy and staples feature prominently

Occidental Petroleum stands out among the names Evercore ISI highlights, with a six-month beta of negative 1.23, the fourth-most negative among the firm's top 20 stocks. Analyst Stephen Richardson rates the oil and gas producer outperform, and the Houston-based company recently reports strong second-quarter results, including $3 billion of free cash flow before working capital from continuing operations, its highest level since the third quarter of 2022.

Occidental also reduces debt by $1.9 billion to $11.8 billion during the quarter. Chevron, which carries a beta of negative 0.90 and also has an outperform rating from Richardson, says on Wednesday that it plans to more than double production in Venezuela over the next five years through a $7 billion investment, raising output to 600,000 barrels a day by 2031 from 280,000 barrels currently.

Among defensive consumer staples names, Evercore ISI points to supermarket chain Kroger and tobacco maker Altria. The mix suggests investors seeking protection inside the equity market are leaning toward sectors with steadier demand patterns or commodity-linked earnings that may hold up differently when broader indexes come under pressure.

Our earlier coverage of rising U.S. Treasury yields explained how the 10-year rate climbing toward key stress levels can pressure U.S. stocks as earnings momentum fades and valuations face a higher discount-rate hurdle. We also noted that persistent inflation concerns, heavy government issuance, and increased long-duration corporate borrowing (including AI-related investment) can keep yields elevated, tightening financial conditions and weighing most on rate-sensitive parts of the market.

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