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Why a Yield Peak Could Lift Banks, Housing and Utilities

October 12, 2026

Video Transcript

Ashley Mastronardi: Joining us now is Jacob Sonenshine, stock pick writer at Barron’s. So what are your takeaways from today’s session?

Jacob Sonenshine: Well, I think, you know, you had this big move up in chip stocks in the last few weeks, and today you took a little bit of a break with that. We’re still in a zone right now where as chip stocks go, so goes the market. I don’t think a lot happened today. I think I’m taking solace in the fact that the bond market was closed. And by the way, the last few days when it’s opened, 10-year yields not going up a lot. So I think today was just a bit of a pause, and we’ll go from here.

Ashley Mastronardi: In fact, you think the 10-year is topping out. Speak to that for me.

Jacob Sonenshine: So I have said that several times. I’ve been wrong several times. And you know what? I’m going to go back in and I’m going to say, I think we’re topping out around here, because now we’ve seen for about a week or two some resistance at the 5.3% level. The 10-year yield today is around 5.2%. Obviously no bond trading today, I think.

So what we have now is a 10-year yield where the real yield is more than two percentage points when you look at inflation expectations annually over the next ten years. And so that real yield historically is pretty good. You’re getting resistance at 5.3, and what it means is that there’s will to buy this thing around where it is now.

Ashley Mastronardi: If the 10-year has peaked, where else should investors be looking?

Jacob Sonenshine: Well, if you think about the areas of the equity market that have gotten absolutely whacked as the 10-year yield has gone up, you want to buy those sectors, if you agree with me that the yield is going to go back down. So we’re talking about home construction, Lowe’s, Home Depot, ITB, which is just the pure construction ETF. Even utilities, which got beat up and are starting to bounce, because I think they got beat up too much. They’re dividend yield plays. So 10-year yield down, utilities up. So utilities, housing, and even, by the way, those bank stocks, if you just look at the way they trade as we go into earnings.

Ashley Mastronardi: That’s right. You’re telling investors to buy the banks ahead of earnings. Banks always reporting first. Why is that?

Jacob Sonenshine: Well, because, so you have JPMorgan coming on Tuesday. The bank stocks are absolutely washed out right now, in my opinion. And when you look at the XLF, which is the financials ETF, it’s getting close to that long-term uptrend line where it doesn’t really go far below. And into earnings, I expect the banks to give good enough guidance.

But I also think if the yield curve no longer compresses, it’s already compressed a lot. If the yield curve really expands, and I don’t think it’s going to compress much more from here, that’s good for bank profitability. I don’t think bank stocks can get much worse.

Ashley Mastronardi: You say the shape of the yield curve matters for everyone, especially for banks. Why is that?

Jacob Sonenshine: Right. Because what you had, you had short-term interest rates going up with the inflation picture, and Kevin Warsh talking about raising short-term rates. So now that puts pressure on economic and inflation expectations long term, right? Inflation expectations long term aren’t up that much. So you have short rates up, and that’s actually limiting the amount that the 10-year yield can go up. And it’s compressing the yield curve, which compresses bank profitability. They borrow short to lend long.

I don’t think the yield curve compresses much more from here. I think the bank earnings are good enough, and the stocks are washed out. They’re cheap. I’d buy them into earnings.

Ashley Mastronardi: All right. Jacob Sonenshine, stock pick writer at Barron’s, thanks for joining us at the New York Stock Exchange.

Chip stocks took a break from their recent run as investors look ahead to bank earnings and watch for signs that Treasury yields may be peaking. Ashley Mastronardi speaks with Jacob Sonenshine, stock pick writer at Barron’s, at the New York Stock Exchange about the 10-year yield, the sectors that could benefit if it pulls back, and why he would buy bank stocks heading into earnings.

Sonenshine says the market remains in a zone where as chip stocks go, so goes the market, and calls today’s session a pause. He argues the 10-year Treasury yield, around 5.2%, may be topping out after about a week or two of resistance at the 5.3% level, noting that the real yield is more than two percentage points above annual inflation expectations over the next ten years, which he says has historically drawn buyers. He acknowledges he has made the call before and been wrong.

If yields head lower, Sonenshine says investors should look at sectors that were hit hardest as rates climbed, including home construction names such as Lowe’s, Home Depot, and the ITB ETF, along with utilities as dividend yield plays. He also favors bank stocks ahead of earnings, starting with JPMorgan on Tuesday, saying they look washed out and cheap, with the XLF nearing its long-term uptrend line. He expects banks to give good enough guidance and says that if the yield curve stops compressing after short-term rates rose on inflation and Fed Chair Kevin Warsh’s talk of rate hikes, that would support bank profitability.

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