Want to know what's next for the stock market? Keep an eye on the yield on US 10-year Treasury bonds.

The Dow Jones index rose to 40,000 points over the past few weeks, a process that coincided with the 10-year Treasury yield falling from about 4.7% to 4.4%. The yield rose slightly to 4.42% on Friday, up 4 basis points.

As long as yields continue to fall, that's good news for stocks. Traders are more confident that yields will fall due to increased market expectations that the Federal Reserve may cut interest rates in September.

Many fund managers interviewed by Barron's are satisfied with this situation, believing that the stock market will rise further, and that some individual stocks and industries may perform better than the general market.

“This is the principle of 'don't fight the FED. ' It's that simple,” said Andrew Krei, Crescent Grove Advisors' Co-Chief Investment Officer. “The Federal Reserve seems inclined to cut interest rates.”

The S&P 500 is up about 11% this year, hovering around 5,300 points. Big tech stocks have played a role, but this round of gains has extended to other industries and stocks, and Krei believes this trend will continue. He is optimistic about the finance, industry, and utilities sectors — these are cyclical and defensive sectors that should benefit when the economy cools down.

“The company's profits are strong. Consumers are still relatively healthy, and although inflation hasn't slowed as quickly as the Federal Reserve would like, the trend is right.” he said.

Driven by the Federal Reserve's interest rate cuts, a stable economy will also help many stocks rise, and the rise in the market last year was mainly due to the top technology stocks in the NASDAQ index.

“Interest rates should go down. Earnings for the first quarter were pretty good. It's hard to tell a negative story,” said Brad Conger, chief investment officer at wealth management firm Hirtle Callaghan.

Conger believes that since the economy is still facing downward pressure, it is reasonable to adopt a more “defensive growth” strategy. His company invests in funds holding shares such as Visa (V.N) and Mastercard (MA.N), as well as utility company Dominion Energy and large consumer goods companies such as Procter & Gamble (PG.N), Kimberly (KMB.N), and McDonald's (MCD.N). These stocks are all what he called non-“ ultra-high growth” companies, and they often have high valuations.

Others are betting on consumers, too. Alger's portfolio manager Amy Zhang said that as the Federal Reserve prepares to cut interest rates, the former economic headwind is turning into a smooth wind.

“The macro trajectory is once again more favorable,” she said. “Powell has become more dovish.” Her two main choices are rapidly growing restaurant chains that should benefit from increased consumer spending: Kura Sushi USA (KRUS.O) and Wingstop (WING.O).

SLC Management's managing director Dec Mullarkey is optimistic about energy, industry, and materials stocks. “There is no doubt that the subject of deflation is back in vogue,” Mullarkey said, noting that “Powell has clearly ruled out the possibility of interest rate hikes, nor does he see stagflation as a credible threat.”

Mullarkey is still bullish on tech stocks, but it's not a blind choice. He pointed out that while Apple (AAPL.O) and Tesla (TSLA.O) are struggling this year, Nvidia (NVDA.O) and Microsoft (MSFT.O) continue to prosper.

“Tesla is struggling with a lack of focus, and investors are aware that Apple is facing growth issues,” Mullarkey said. “Investors have correctly selected leaders in the field of artificial intelligence and cloud computing, namely Nvidia, Microsoft, Google (GOOGL.O), and Amazon (AMZN.O), which provides AWS to some extent.”

He added that if you insist on investing in technology stocks, you should choose “infrastructure companies, which have more moats.”

Editor/Jeffrey