Schwab’s Liz Ann Sonders on 10-year Treasury yield: Move up has been justified by the fundamentals

Rising 10-year Treasury yields, recently surpassing 5.25%, are fundamentally supported by nominal GDP growth and Federal Reserve policy expectations rather than signaling immediate equity market instability. Liz Ann Sonders, Chief Investment Strategist at Schwab Center for Financial Research, advocates for a high-quality equity strategy focusing on "GARP-like" factors, including positive forward earnings growth, stable profit margins, and strong balance sheets with high interest coverage. While the cap-weighted index remains resilient, interest-sensitive sectors like utilities, REITs, and financials show underlying strain. The artificial intelligence narrative is transitioning into a "cascade phase," moving beyond initial infrastructure build-outs to broader industry applications. Investors should prioritize companies utilizing AI to improve productivity and disrupt their own cost structures, particularly those demonstrating positive earnings revisions and surprises as the third-quarter reporting season approaches.