Three quick takeaways from this month’s markets:
The Fed. New chair Kevin Warsh has moved away from formal forward guidance, prioritizing price stability. Rates have held at 3.5%–3.75% since December. June inflation cooled to 3.5%, the sharpest one-month drop since 2020. But the conversation has flipped: markets aren’t debating rate cuts anymore, they’re pricing in the odds of a hike, with July seen as unlikely but the odds rising toward a coin flip by December.
Stocks vs. bonds, yield-to-yield. The S&P 500’s earnings yield is about 4.9%; the 10-year Treasury is about 4.5%. That 0.4% gap, stocks’ reward for taking on market risk, is the thinnest since 2002 (historically it’s run 3-5%). Earnings growth above 20% still favors stocks, but bonds haven’t looked this competitive in over two decades.
Bonds as ballast. After a decade of near-zero yields, bonds are paying real income again near cycle highs. Historically, in the dot-com bust, 2008 financial crisis, and Covid crash, high-quality bonds held steady or gained while stocks fell. Today they offer that same downside protection, plus a real yield.
Bottom line: the Fed is watchful, stocks and bonds are yielding roughly the same for the first time in years, and bonds are worth a second look as portfolio ballast.
