The Federal Reserve gave investors an early Christmas present by lowering interest rates by 25 basis points (i.e., 0.25%) marking its third rate cut this year. In the past, a change like this in the “long end” of the interest rate yield curve has triggered a predictable, investable pattern.
Typically, this pattern would be bearish for finance stocks, particularly banks—investors would buy bank stocks when rates rose and sell them as rates fell.
But in 2025, this pattern hasn’t held. Even after the Fed’s third cut of the year, 10-year Treasury yields remain stubbornly high, suggesting that financial investors need to rethink old assumptions.
The interest yield curve is likely to steepen from its currently modestly positive level. This discrepancy affords banks the ability to lend to consumers at lower rates (i.e., the short end) and still offer attractive yields on products that are tied to the long end of the yield curve.
With that in mind, here are three stocks to buy for investors who believe the 10-year rates will remain higher for longer.
JPMorgan Chase: Best-in-Class Bank Built for Higher Long-Term Rates
The simplest reason to buy JPMorgan Chase & Co. (NYSE: JPM) stock is that the company is considered best-in-class among the “big banks.” The bank has a fortress balance sheet and outperforms in every category: personal banking, commercial banking, asset and wealth management corporate banking.
JPM stock is up 31.5% year-to-date (YTD) as of Dec. 11. That puts the stock within about 3% of its consensus price target.
However, those targets have been moving higher since the bank reported earnings in mid-October. JPMorgan Chase also pays a reliable dividend that has increased for 15 consecutive years.
If there’s an area of concern at the moment, it would be valuation. At around 15.6x earnings, JPM stock is slightly overvalued on a historical basis. New investors may want to wait for a better entry point.
That could come from a pullback to around $300, which has happened twice in the last month. Alternatively, investors could look for a bullish move above the stock’s 52-week high of $322.25.
Morgan Stanley: Wealth Management Strength Meets Rising Rates
Morgan Stanley (NYSE: MS) is another financial services company that’s been outperforming the broader market. MS stock is up approximately 44% YTD. Although this puts the stock above its consensus price target, it received an upgrade and price target increase from Weiss Research in mid-November.
The bullish sentiment is based on the company’s growing wealth and investment management franchise, which drives a majority of the firm’s earnings and high-margin revenue.
That business will continue to benefit from higher long-term rates.
Investors also anticipate a revival in initial public offerings (IPOs) as well as mergers and acquisitions (M&A) in 2026.
Like JPM stock, Morgan Stanley is trading at a slight premium to its historical average.
But with institutional investors looking to broaden this bull market, MS stock is a logical choice in the financial sector.
Prudential Financial: A Discounted Income Play for Higher Rates
Prudential Financial Inc. (NYSE: PRU) is the asymmetric play on this list of finance stocks. The company offers an appealing mix of income, defensive stability, and gradual earnings growth.
PRU stock is down 0.71% in 2025 but is up more than 10% in the 30 days ending Dec. 11. One reason for the stock’s performance is its declining year-over-year (YOY) revenue. That’s being offset by strong YOY earnings growth.
Analysts may buy into the story that higher-for-longer interest rates will expand investment income across its core retirement, annuity, and life insurance segments, supporting margin expansion.
The company is also benefiting from ongoing derisking efforts and a shift toward fee-based and international businesses that provide more stable cash flow.
Plus, at 15.7x earnings, Prudential is trading at a discount to its historical average. Investors also like the company’s high-yield dividend, which has a 4.59% yield as of this writing.
After the recent spike higher, PRU stock looks a little extended. Investors will want to wait for a pullback to around $108, which would align with the stock’s 20-day simple moving average (SMA), not shown. Alternatively, investors may want to wait for confirmation of a bullish golden cross signal, which is setting up.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
