Markets

10-Year Treasury Yield Hits 5% as Stocks Hold Ground

By Markets Desk · 2026-09-19 · 1 min read

A wooden gavel resting on a polished desk surface — Illustration: Tradingbird

The 10-year U.S. Treasury yield climbed to 5.0%, triggering a sharp reaction in financial markets. Despite the rise in risk-free rates, equities remain supported by strong economic growth data.

The 10-year U.S. Treasury yield has shifted from the 4.0%-4.5% range to the 4.5%-5.0% band. This move initially caused a negative reaction in stock markets. Traditional theory suggests higher rates squeeze equity valuations by raising borrowing costs. However, the current market environment differs from previous high-rate periods.

According to GN auto markets/bonds: treasury yields, the driver of this rate increase is robust economic expansion. Real U.S. GDP is growing at a 5.1% pace for the third quarter. This figure comes from the Atlanta Fed GDPNow reading released on September 17. With baseline inflation near 2.5%, nominal GDP growth approaches 7%.

Nominal Growth Outpaces Rate Hikes

Corporate revenue tracks nominal economic growth rather than real GDP. A 7% nominal growth rate allows companies to absorb a 5% interest rate hurdle. Historical data supports this resilience. From 1997 to 2006, the 10-year yield averaged between 5.0% and 5.5%. The S&P 500 delivered strong returns during this period.

The 1995-1999 Dot Com boom saw yields range from 5.2% to 7.1%. The S&P 500 gained 220% over that stretch. In the 2003-2007 expansion, yields rose from 3.3% to 5.2%. These periods coincided with broad global economic growth and corporate margin expansion.

Earnings Growth Drives Market Resilience

A 50-basis-point yield increase may compress the S&P 500 forward P/E multiple. The multiple could drop from 22x to 20x. However, profit expansion outweighs this valuation adjustment. FactSet projects 28.7% year-over-year earnings growth for the S&P 500 in Q3 2026.

This would mark the third consecutive quarter of earnings growth above 25%. All 11 S&P sectors are projected to report year-over-year growth. Five sectors, including Energy and Information Technology, are expected to see double-digit gains. The forward 12-month P/E ratio stands at 19.1, near the 10-year average.

Corporate Guidance Remains Positive

Company guidance reflects this optimism. As of June 30, 72 S&P 500 companies issued positive EPS guidance for Q3 2026. Only 42 companies issued negative guidance. The first two companies to report Q3 results beat EPS estimates. Both also reported positive revenue surprises.

Based on reporting by Investing.com, compiled by the Tradingbird desk.