With CPI hitting 3.8% and 30-year Treasury yields at their highest since 2007, a September 25-basis-point Fed rate hike looks virtually certain.
Energy Transfer (ET) pays a 6.58% distribution yield while Prudential Financial (PRU) offers 4.64%, both positioned to profit as rates climb higher.
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Converging forces are pushing rates higher in 2026. The Iran conflict closed the Strait of Hormuz, spiking crude oil prices and raising production and transport costs. This energy shock drove inflation higher, with the CPI rising earlier this summer to 3.8%, which was the sharpest increase in three years and well above the Federal Reserve’s 2% target. This, in turn, has prompted lenders to demand higher rates to protect returns. Meanwhile, investors sold bonds amid rising inflation and concerns about U.S. debt, lifting Treasury yields to the highest levels for the 30-year bond since 2007. Since mortgage rates are based on the 10-year Treasury yield plus a risk premium, they rose in tandem and are at their highest levels since the summer of 2025.
On the fiscal side, federal interest payments on government T-bills, notes, and bonds now exceed spending on Medicaid, national defense, and all nondefense discretionary programs combined, adding further upward pressure on long-term borrowing costs. Experts say rates will only fall if geopolitical tensions ease, oil prices stabilize, and inflation remains under control, outcomes that remain highly uncertain. One thing is for sure: if the July consumer and producer price index numbers come in above expectations this week, a 25-basis-point September increase is still on the table.
The dreadful jobs data on Friday gave some relief to the rate-hike narrative, but the reality remains the same: If inflation jumps in the reports this week, you can bet it will be there in the August report in early September. Plus, the August jobs report will be released in early September, before the Fed meeting, and jobs are likely to bounce back from the negative print last Friday.
Typically, when interest rates go higher, these four sectors tend to win:
Financials and Insurance Companies
Financials and insurance companies are the biggest winners. Banks earn a wider spread between what they pay depositors and what they charge borrowers. Insurers earn more on their investment portfolios because they hold large amounts of cash to pay incurred insurance claims. The sector almost mechanically benefits from rising rates, as net interest income rises.
U.S. Bancorp
Based in Minneapolis, this super-regional financial giant is an outstanding choice for growth and income investors now, offering a hefty 3.24% dividend. U.S. Bancorp (NYSE: USB) is a financial services holding company.
It offers a comprehensive range of financial services, including lending and deposit services, cash management, capital markets, and trust and investment management services. It also engages in credit card services, merchant and ATM processing, mortgage banking, insurance, brokerage, and leasing.
The company’s banking subsidiary, U.S. Bank National Association (USBNA), is engaged in the banking business, principally in domestic markets. USBNA provides a range of products and services to individuals, businesses, institutional organizations, governmental entities, and other financial institutions.
The non-banking subsidiaries offer investment and insurance products to customers primarily within their domestic markets, as well as fund administration services to a range of mutual and other funds.
Oppenheimer has an Outperform rating with a target price of $77.
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Prudential Financial
Prudential Financial (NYSE: PRU) offers a range of insurance, investment management, and other financial products and services. With a rich 4.64% dividend yield, this insurance and investment giant is a safe option for conservative investors. Prudential provides insurance, investment management, and other financial products and services in the United States and internationally.
It operates through five segments:
PGIM
Retirement Strategies
Group Insurance
Individual Life
International Business
The PGIM segment offers investment management services and solutions related to public fixed income, public equity, real estate debt and equity, private credit, and other alternatives, as well as multi-asset class strategies, to institutional and retail clients and its general account.
The Retirement Strategies segment provides a range of retirement investment and income products and services to retirement plan sponsors in the public, private, and not-for-profit sectors. It develops and distributes individual variable and fixed annuity products.
The Group Insurance segment offers:
Various group life plans
Long-term and short-term group disability
Group corporate, bank, and trust-owned life insurance in the United States, primarily for institutional clients, for use in connection with employee and membership benefits plans
Accidental death and dismemberment, and other supplemental health solutions
Plan administration services in connection with its insurance coverages
The Individual Life segment develops and distributes variable life, universal life, and term life insurance products.
The International Businesses segment develops and distributes life insurance, retirement products, investment products, specific accident and health products, and advisory services. The company provides its products and services to individual and institutional customers through its proprietary and third-party distribution networks.
J.P. Morgan has a Neutral rating with a $129 target price.
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Energy
Energy benefits because rate hikes typically coincide with inflation, and oil and gas prices are a primary driver of inflation. Higher commodity prices translate to higher revenues. It’s the inflation-hedge play, and it’s been one of the strongest-performing S&P sectors so far in 2026.
Energy Transfer (NYSE: ET) is one of North America’s largest and most diversified midstream energy companies. This top master limited partnership is a safe option for investors seeking energy exposure and income, as the company pays a 6.58% distribution yield. Energy Transfer owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint across all major domestic production basins. The company blew out second-quarter earnings and looks poised to move to new highs.
The company is a publicly traded limited partnership with core operations that include:
Complementary natural gas midstream, intrastate, and interstate transportation and storage assets
Crude oil, natural gas liquids (NGL), and refined product transportation and terminalling assets
NGL fractionation
Various acquisition and marketing assets
Following the acquisition of Enable Partners in December 2021, Energy Transfer owns and operates over 114,000 miles of pipelines and related assets in 41 states, spanning all major U.S. producing regions and markets. This further solidifies its leadership position in the midstream sector.
Through its ownership of Energy Transfer Operating, formerly known as Energy Transfer Partners, the company also owns Lake Charles LNG Company; the general partner interests, the incentive distribution rights, and 28.5 million standard units of Sunoco (NYSE: SUN); and the public partner interests and 39.7 million standard units of USA Compression Partners (NYSE: USAC).
TD Cowen has a Buy rating on the shares, with a $24 target price.
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Healthcare
Pricing power and steady demand insulate the top healthcare names. They don’t directly benefit from higher rates, but they tend to hold up well because their earnings don’t erode as much as those of interest-sensitive sectors.
Bristol-Myers Squibb
Bristol Myers Squibb (NYSE: BMY) is a global biopharmaceutical company committed to discovering, developing, and delivering transformative medicines for patients with serious diseases across oncology, hematology, immunology, cardiovascular disease, neuroscience, and other therapeutic areas. It remains a solid pharmaceutical stock to own in the long term, offering an outstanding entry point with a reliable 3.81% dividend.
Its platforms comprise chemically synthesized or small-molecule drugs, including protein degraders, as well as biologics produced through biological processes. These platforms also encompass ADCs, CAR-T cell therapies, and radiopharmaceutical therapeutics.
Small-molecule drugs are typically administered orally in tablet or capsule form, although other drug-delivery mechanisms are also used. Biologics are usually administered by injection or intravenous infusion. CAR-T cell therapies are administered by intravenous infusion.
Its growth portfolio includes:
Opdivo
Opdivo Qvantig
Orencia
Yervoy
Reblozyl
Opdualag
The legacy portfolio includes:
Eliquis
Revlimid
Pomalyst/Imnovid
Sprycel
Abraxane
Argus has a Buy rating with a $75 price objective.
Industrial stocks often perform well in rising-rate environments because rate hikes can signal a strengthening and expanding economy. As businesses ramp up activity, demand for heavy equipment, machinery, and manufacturing capacity increases. This allows these cyclical companies to secure stronger order books and exercise greater pricing power, more than enough to offset their higher cost of capital.
Stanley Black & Decker
Stanley Black & Decker (NYSE: SWK) is the world’s largest tool company, with 50 manufacturing facilities in the United States and more than 100 worldwide. Shares trade at 17.7 times forward earnings estimates. With the potential for the economy to slow somewhat, do-it-yourself consumers are likely to repair rather than replace, making this legendary stock a solid idea now while yielding a dependable 3.24% dividend.
Stanley Black & Decker provides hand tools, power tools, outdoor products, and related accessories in North and South America, Europe, and Asia. Its Tools & Outdoor segment offers professional-grade corded and cordless electric power tools and equipment, including:
Drills
Impact wrenches and drivers
Grinders, saws, routers, and sanders
Pneumatic tools and fasteners, such as nail guns, nails, staplers and staples, and concrete and masonry anchors; corded and cordless electric power tools
Hand-held vacuums, paint tools, and cleaning appliances
Leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels, and industrial and automotive tools
Drill and screwdriver bits, router bits, abrasives, saw blades, and threading products
Toolboxes, sawhorses, medical cabinets, and engineered storage solutions
Electric and gas-powered lawn and garden products
This segment sells its products under such brand names as:
DeWalt
Craftsman
Black+Decker
Stanley
Flex Volt
Irwin
Lenox
The Industrial segment provides:
Threaded fasteners, blind rivets and tools, blind inserts and tools
Drawn arc weld studs and systems
Engineered plastic and mechanical fasteners
Self-piercing riveting systems
Precision nut running systems
Micro fasteners
High-strength structural fasteners
Axle swage, latches, heat shields, pins, couplings, fittings, and other engineered products
Attachments used on excavators and handheld tools
The segment sells its products through a direct sales force and third-party distributors to various industries, including automotive, manufacturing, electronics, construction, aerospace, and others.
Citigroup has a Buy rating on the shares and a $107 target.
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