Five for Friday

Bond Yields, Seasonality, Job Market, Sentiment, and Football

1. Yields

One of the big stories to start September is the move higher in long-term bond yields across the globe, catalyzed in part by renewed concern over certain countries’ fiscal situations (when investors sell bonds, prices fall and yields rise). While maybe not an outright return of the famed bond vigilantes of yore, investor anxiety about fiscal spending and sticky inflation could well keep bond yields higher for longer – an interesting turn with the Fed all-but-certain to cut interest rates this month. The question is, “does it matter for stocks?” In the near-term, it might. Rising bond yields – both at home and abroad ‒ have acted as a thorn in the side of stocks since the bull market began in Oct. 2022 (see: 2024 yen tantrum).

Longer-term, however, it’s harder to make the case. For most of the last 60 years, long-term yields have been much higher than they are today and did not inhibit the stock market’s tremendous gains over that period. Across the 1980s, 10-year Treasurys averaged a yield of 11% and the S&P 500 returned nearly 400%; across the 1990s, the 10-year Treasury averaged a yield of 7% and the S&P 500 returned MORE than 400% (by comparison, the 10-year today is just north of 4%). In the end, the market has thrived through all types of rate environments, and while stocks may occasionally take time to digest a big move in yields, the historical data suggests that yields aren’t the boogeyman they’re often made out to be.

2. Fall

Over the last 75 years, September is the only month in which the stock market averages a negative return. Some credit return-from-vacation portfolio adjustments or funds selling/rebalancing ahead of fiscal year-end (often Sept. 30), while others think that a statistical quirk has simply become self-fulfilling prophecy now that the data is so widely available. For investors, it’s useful to be aware of this trend and the potential for volatility to pick up in the coming weeks, but seasonal history is far from something to build an investment case around. This is in part because it’s not a perfect indicator – the market has had several great autumn runs, including three straight Septembers of over 5%, from 1996 to 1998.  

3. Jobs

Next Tuesday could see market volatility, with the BLS set to release job growth revisions for 2024-25 as part of its annual benchmarking process. Last year, this update revealed a downward revision of -818,000 jobs, the largest since 2009, fueling many calls for the Fed to start cutting interest rates ASAP. Today’s setup is much the same and a large downward revision could spark calls for more rate cuts, and sooner. Fed Governor Waller, the betting favorite to replace Jerome Powell as chair, made a recent case for more aggressive cuts based on a cooler labor market.

4. Vibes

The American Association of Individual Investors, proprietors of the widely-used AAII investor sentiment survey, recently asked individuals how their sentiment towards the market has changed since the start of the year: 84% were more bearish, more cautious, or unchanged, while only 16% were more bullish. That pessimism comes despite a robust global market rally, resilient corporate earnings, and an A.I. explosion. If the adage is true that "bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria," then this bull market could have room to run.  

5. On this day

in 1906, St. Louis University’s Bradbury Robinson threw the first legal forward pass in American football history (an incompletion, but still). The team went on to an 11-0 record, outscoring opponents 407-11 behind an air attack that modernized the game ‒ and potentially saved it from being made illegal. Today, behind season after season of record-setting passing, American football is easily the most popular sport in the country ‒ and still growing at a breakneck pace.  

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