We Need To Keep A Close Eye On Bonds

1.) LABOR – Job Openings (JOLTS) trounced estimates yesterday, logging the largest sequential gain in 5 years while rising to the highest level since May 2024. The gain was good enough to push the jobs-to-jobless ratio back above 1.0 for the first time since last June. Will the April data be revised lower? Probably. But the directional read will likely hold. This just continues to point to the firming of domestic labor data. Meanwhile, after years of near 7-figure negative revisions to the Non-Farm Payroll data, the latest QCEW data (the more comprehensive payroll data that serves as the basis for the annual NFP revision) for 4Q25 is now signaling a positive, upward revision of 160K-180K jobs for the April 2025-April 2026 period. That is not recessionary data. More jobs = more money for people to spend and/or save. You can spend: 1. what you make (wage income); 2. what you have (savings); 3. what you don’t have (credit). #1 is improving along with the firming of the labor market. #2 continues to fall as the savings rate is not good. #3 continues to accelerate with total bank loan growth accelerating to cycle Rate of Change highs at +7.4% Year over Year.

2.) 60/40=100 – That equation might make you think…“Well, duh…of course.” Some of you might also think I’m talking about a typical 60/40 (stock/bond) portfolio. But it’s more than that. It’s the belief in asset allocation that stocks and bonds are fundamentally different. The thought for most is that stocks provide “growth,” while bonds provide “protection.” The belief that when stocks get into trouble, bonds come to the rescue. That assumption became embedded into the foundation of modern portfolio construction. The problem is that correlations don’t care what your investment committee believes. So, maybe the biggest story in markets isn’t AI, stock “bubbles,” tariffs, geopolitics, or the Fed and who’s in charge. Maybe, just maybe, the larger point is that one of the most important relationships in all of finance has been changing. For decades, investors became accustomed to a world where bonds could cushion equity declines. That relationship became so accepted that it stopped being questioned. Then 2022 happened and both stocks and bonds got crushed. Many viewed that as a “one-off,” an anomaly. I’m not sure. Today we’re seeing an extreme in rolling 20-day correlations between the change in the US 10YR Yield and the S&P 500. It’s basically saying that interest rates matter more than most investors appreciate. The assumption that bonds are always there to save you has already been challenged. The question that staunch bondholders need to ask themselves is what happens if Treasury yields continue to move higher for reasons that have nothing to do with economic growth? Without a systematic read on the bond market, those bondholders are cooked. Every bear market has its catalyst. In 2000, it was technology. In 2008, it was housing and credit. In 2020, it was the global shutdown. In 2022 it was out-of-control inflation due to the massive capital infusion by the Fed. The next bear? Maybe it’s the bond market. Not because bonds are going away. They’re not. Not because rates are about to explode tomorrow. They probably won’t. But because the entire investment industry remains built around assumptions that were developed during a very specific interest-rate regime that doesn’t appear to exist anymore. At some point, people will begin asking why “diversified portfolios” aren’t diversifying. Don’t be stuck in buy and hold. Be willing to be systematic and make adjustments as the market flows dictate.

3.) SENTIMENT – On a contrarian basis, various sentiment readings continue to point to bullish outcomes. Recently, the Schwab Retail Client Sentiment Survey done in Q2 2026 showed that 58% of investors are bearish on US stocks. That’s good… enough fear in the system to keep grinding higher, with the occasional “panic” that ends up being a buy event more than anything. Could that change? Of course! But for now, euphoria is nowhere in sight.