September 24, 2026: The Return of the Cost of Capital

For much of the past 15 years, investors operated in a world of exceptionally low interest rates. Cheap capital helped lift stock valuations, support housing prices, fuel private market activity, and enable substantial government borrowing. That environment changed in 2022 as the Federal Reserve raised interest rates to combat inflation. Today, the 10-year Treasury yield has largely returned to historically normal levels, reaching 4.96% as of September 21st versus a long-term average of roughly 5.5%.

While bond markets have adjusted to this new reality, other areas of the economy continue to reflect the assumptions of the low-rate era. Equity valuations remain elevated, home prices have proven resilient despite higher mortgage rates, and federal deficits continue to expand as interest costs become a larger share of government spending.

Looking ahead, investors could demand even higher yields to support a growing supply of Treasury debt. The resulting increase in the cost of capital may place pressure on richly valued growth stocks, slow activity in housing and private markets, and raise financing costs across the economy. At the same time, higher rates have restored the income potential of fixed income, creating opportunities that were largely absent during the post-financial-crisis period.

Markets are adjusting to a world where capital once again carries a meaningful cost. Valuation discipline, careful manager selection, and diversification may become increasingly important, while bonds can once again serve as both a source of income and portfolio stability.

Weekly Market Update: September 24, 2026