Rising Yields Create Opportunities as Market Leadership Broadens

1. Yields Pull Back After a Sharp Move Higher The 10-year Treasury yield climbed to 5.3% before pulling back, following a significant move higher in recent months. Yields have risen roughly 117 basis points from their lows, including a 60-basis-point increase in September alone.¹ Despite hotter-than-expected CPI and PPI readings, Treasury yields moved lower this week, suggesting that some negative news may already have been priced into the bond market. Investors may also be weighing the possibility that higher borrowing costs will eventually slow economic growth, although the latest data has yet to show a meaningful deterioration.

The move in rates has spilled into equities, with the Nasdaq experiencing its worst week since July. Higher financing costs have put pressure on some of the market’s more leveraged AI and semiconductor companies, highlighting the importance of being selective. However, we believe the selloff is creating opportunities among quality businesses with strong cash generation and balance sheets. As yields stabilize, investors may begin distinguishing between companies that depend on external financing and those that can fund their growth internally.

2. Technology Weakness Creates Opportunities The recent pullback in technology has also contributed to a broadening of market leadership, with other sectors beginning to participate as yields have eased. We view this as a healthy development after a period in which a relatively small group of large technology companies drove the major indexes higher. Broader participation would provide a stronger foundation for the market, particularly if economic growth and corporate earnings continue to hold up.

Importantly, not all AI and semiconductor companies face the same financing risks. CoreWeave and Oracle carry significant debt obligations, making borrowing costs an important consideration. By contrast, NVIDIA generates approximately $48 billion in quarterly cash flow, Broadcom generates roughly $14 billion, and Micron maintains a substantial net cash position.² These differences matter during periods of market volatility. We would not abandon technology in favor of other sectors but instead use earnings season to identify opportunities in quality companies whose fundamentals remain strong despite the broader selloff.

3. Economic Data and Bank Earnings Remain Encouraging Despite higher yields and elevated inflation readings, the economy continues to demonstrate resilience. Retail sales excluding gasoline increased 5% year-over-year, while the four-week average of initial jobless claims remained low at approximately 198,000.³ Regional manufacturing surveys, including the Philadelphia and New York Fed indexes, also came in better than expected and pointed to improving activity. Taken together, the data suggests that higher interest rates have not yet meaningfully disrupted consumer spending or business activity.

Recent results from the six largest U.S. banks reinforced that message. While capital markets and M&A activity remained areas of weakness, net interest income, net interest margins, and forward guidance were generally encouraging. Management teams also consistently described the consumer as healthy, with credit quality remaining relatively benign. The banking results are particularly important because they provide insight into household finances, lending conditions and corporate demand. For now, the evidence continues to point toward an economy that is holding up better than many investors might expect.

4. Fixed Income U.S. Treasury yields declined across the curve last week, reversing the mid-week selloff sparked by the CPI release. The move reflected a flight to safety amid a selloff in AI-related equities, driven by concerns that higher funding costs could constrain their debt-driven growth. By Friday’s close, the 2-, 10-, and 30-year yields had fallen by 8, 17, and 18 basis points, respectively.⁴

Credit markets weakened last week, with widening spreads evident across both investment-grade and high-yield segments. Investment-grade spreads were wider by 2 basis points to +119 by the end of the week, while high-yield spreads expanded 16 basis points to +362. In the tax-exempt market, Municipal yields followed Treasuries, declining between 13 to 19 basis points across the curve.⁵

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Return for Selected Indices⁶

All charts are for illustrative purposes only. Past performance does not guarantee future results. Yield, if shown, are for informational purposes only, may change, and do not guarantee future income, return, or investment results. An index is a portfolio of specific securities (such as the S&P 500, Dow Jones Industrial Average and Nasdaq composite), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index.

Sources:

1. Bloomberg: As of October 19, 2026 ↩︎
2. Bloomberg: As of October 19, 2026 ↩︎
3. Bloomberg: As of October 15, 2026 ↩︎
4. Bloomberg: As of October 19, 2026 ↩︎
5. Bloomberg: As of October 19, 2026 ↩︎
6. Bloomberg: As of October 19, 2026 ↩︎

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