The 10‑Year U.S. Treasury Yield Index (TNX) slipped lower in June, ending a stretch of rising rates that dominated the second quarter.
During a recent market chat, a listener asked which stocks usually do well when rates fall.
It’s clear the yield curve is turning down. The 10‑Year is now under its 50‑day moving average for the first time since March, and still far above the 200‑day average near 4.25%.
If long‑term Treasury prices keep climbing, borrowing costs will stay low. That environment can lift several groups of stocks, even though many other factors also influence performance.
Small‑Cap Stocks Gain From Cheaper Borrowing
Big companies often have deep cash reserves, so they don’t need to borrow as much. Small firms, however, feel a bigger impact when loan rates drop.
The iShares Russell 2000 ETF (IWM) has been climbing slowly but consistently. Each pull‑back finds support near a 21‑day exponential moving average, and the price often makes a new high after each dip.
In 2026, the Russell 2000 has already beaten the Nasdaq‑100, making it the top‑performing major U.S. index. Lower rates act as a tailwind for these smaller companies, and we expect the trend to keep helping them into the third quarter.
Homebuilders Benefit From Dropping Mortgage Rates
Home‑building firms have struggled lately. The iShares U.S. Home Construction ETF (ITB) spent most of the past four months below its 200‑day moving average.
Recent price action shows the Relative Strength Index (RSI) moving above the 60 level, suggesting that buyers are gaining confidence. When mortgage rates fall, more people can afford homes, giving builders a boost.
Defensive “Bond‑Proxy” Stocks May Attract Yield‑Seekers
When Treasury yields slip, investors often look for other places to earn income. Stocks that act like bonds—low volatility and solid dividends—can attract those seeking safety.
Utilities and real‑estate companies fit this description. The Real Estate Select Sector SPDR Fund (XLRE) is in a clear uptrend, posting higher highs and higher lows.
If XLRE can push its RSI back above 60, it would confirm stronger buying momentum and could spark a fresh rally in the real‑estate sector. As investors search for alternatives to high‑growth stocks, these defensive groups may see renewed interest.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always consider your own financial situation and consult a professional before making investment decisions.
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