The 10-Year Treasury Yield Is Near a 24-Year High. History Says Stock Investors Should Do This 1 Thing.

The U.S. is in a much different place now than it was in 2002. Back then, the country was still recovering from the terrorist attacks on Sept. 11, 2001. The stock market was still reeling from the bursting of the dot-com bubble. However, there is one striking similarity between now and then -- ultra-high bond yields.

On Wednesday, Oct. 7, 2026, the 10-year U.S. Treasury yield reached 5.36%, the highest level since 2002. Although the yield pulled back somewhat over the next couple of days, it's still near the 24-year high.

This elevated 10-year Treasury yield has a major implication for the stock market. History says that investors should do one thing.

Image source: Getty Images. Image source: Getty Images.

Why yields are surging

Several factors are converging simultaneously to push 10-year Treasury yields (and yields of other Treasury bonds) to multi-decade highs. One key driver is persistent inflation. The ongoing Iran war has caused oil prices to rise sharply, which has, in turn, created broad inflationary pressure.

The Federal Reserve's response to higher inflation has been to raise interest rates. When rates rise, so do bond yields. Furthermore, most market observers anticipate that the rate-hike cycle isn't over. CME Group's (NASDAQ:CME) FedWatch estimates an 86% probability of another rate increase when the Federal Open Market Committee (FOMC) meets in December 2026.

Meanwhile, the U.S. federal budget deficit for fiscal year 2026 reached $1.993 trillion. This debt must be funded by issuing Treasury bonds. As the supply of these bonds expands, higher yields are needed to attract investors.

Treasury bonds are also competing with roughly $489 billion in debt issued by companies building artificial intelligence (AI) infrastructure. Again, more supply means higher yields.

What stock investors should do

Bond markets directly impact the stock market. When relatively risk-free 10-year Treasury yields are high, stocks must offer higher returns to compete. If they can't, stock prices will fall.

The stock market's valuation makes it more challenging to deliver those higher returns. The S&P 500 (SNPINDEX:^GSPC) Shiller CAPE (cyclically-adjusted price-to-earnings) ratio is near its highest level since early 2001.

What should investors do? History shows that buying and holding high-quality dividend stocks is a smart move. In particular, focusing on dividend growers with inflation-protected cash flows offers a greater opportunity to successfully navigate environments with high Treasury yields.

Such stocks aren't hard to find. For example, Chevron (NYSE:CVX) has increased its dividend for 39 consecutive years. Since energy prices are typically a leading contributor to inflation, the company's revenue and profits are largely inflation-resistant.

Keep in mind, though, that the 10-year Treasury yield hitting a 24-year high doesn't mean that a stock market crash is imminent. It does, however, reflect market dynamics where some stocks are in a stronger position than others. Wise investors will avoid stocks whose valuations depend on low rates and gravitate toward stocks that benefit from the underlying reasons behind higher rates.

Keith Speights has positions in Chevron. The Motley Fool has positions in and recommends CME Group and Chevron. The Motley Fool has a disclosure policy.