Here's Another Group of Stocks Getting Hammered by Soaring Yields

The KBW Nasdaq Bank Index fell 9.7% over the past month, versus a roughly 1.5% gain in the S&P 500, marking banks’ worst September relative performance against the S&P 500 since 1990. The 10-year Treasury yield reached 5.31%, 1.15 percentage points above its level at the beginning of 2026; higher yields may squeeze bank margins, funding costs, loan demand and bond-portfolio values. A recent steepening of the yield curve may provide some near-term support, but markets and Fed projections point to possible additional rate hikes, and the article advises caution on bank stocks until yields stabilize.

Analysis

The key distinction is not simply “higher rates hurt banks”; it is whether asset yields reset faster than deposit costs, and whether the curve steepens for the right reason. A long-end-led steepening could eventually support traditional lenders, but Treasury competition can lift deposit betas before loan books reprice, while further yield rises prolong mark-to-market pressure and may constrain balance-sheet flexibility. That makes BAC and PNC more exposed to the funding/loan-spread trade-off than a generic bank label implies. BNY’s economics are also sensitive to client asset values and flows; GS and MS have a separate vulnerability to weaker deal activity and risk appetite, so a curve bounce alone is not a clean catalyst for them.

Near term (days), the sell-off and uncertainty argue against chasing a broad short. Over 1–3 months, watch deposit costs, securities marks, loan growth/credit quality, and capital-markets guidance; the recent curve steepening is only a potential offset, not proof of margin recovery. Over 6–18 months, stable rates could let banks reinvest maturities at better yields, but that benefit is conditional on deposit retention and credit performance. Contrarian point: the market may be treating all banks as duration trades, although earnings drivers differ materially. Conversely, calling the move an opportunity before deposit repricing and credit data turn is premature. The thesis improves if long rates stabilize and deposit-cost growth slows; it fails if funding costs keep rising, credit metrics weaken, or securities losses materially constrain capital.

Key Decisions for Investors

• No broad bank-equity dip-buy yet. Keep exposure below benchmark pending evidence from the next reporting cycle that deposit-cost growth is decelerating and net interest income guidance is stabilizing; avoid adding solely because the curve steepened.
• Relative-value alert, not an immediate trade: assess a long GS / short PNC pair only if valuation and earnings revisions show PNC’s deposit-and-loan sensitivity worsening while GS’s capital-markets outlook is holding up. Revisit if M&A/trading guidance deteriorates or PNC demonstrates better funding resilience; do not assume either outcome from rates alone.
• Catalyst watch for the next 1–3 months: track the 2s10s curve, bank deposit costs and loan growth, securities-portfolio marks, and credit delinquencies. A sustained curve steepening plus slowing deposit repricing would support reducing the underweight; renewed long-yield increases accompanied by faster deposit-cost growth or weaker credit would reinforce it.