weekly headings

The Pendulum Swings Back To Macro. For the past five weeks, markets have been focused on a steady stream of corporate earnings, supported by upbeat management commentary and another quarter of strong results. But with 2Q26 earnings season nearing its end, Warsh Has An Opportunity To Provide investors' attention is shifting back to the macro backdrop. The good news: the economy, Greater Clarity At Jackson Hole while slowing modestly, remains resilient, and the S&P 500 continues to hover near record highs. The challenge: government bond yields around the world have climbed to multi- Growth Remains Resilient, But The year highs, and the persistence of the move is becoming harder to ignore. With the national Tailwinds Are Likely To Fade debt surpassing $40 trillion, the AI spending boom fueling a surge in corporate bond issuance, and markets testing the new Fed chair’s inflation-fighting resolve, investors are While Inflation Remains Elevated, The increasingly asking how much further yields can rise. Below, we explain why the recent rise Outlook Is Expected To Improve in yields may be creating opportunity rather than signaling a bond market crisis. Higher Yields, Better Opportunity? | Bond yields have drawn much attention lately, and for good reason. The 30-year Treasury yield climbed above 5.3% this week, its highest level since 2007, while the 10-year Treasury yield reached its highest level since January 2025. Although the nation’s fiscal challenges and growing competition for capital as mega-cap tech companies tap the bond market to fund the AI buildout are legitimate concerns, the path of yields will ultimately depend on where the two key drivers—growth and inflation—head in the months ahead. • The Market Is Testing Warsh—History suggests markets often test new Fed chairs early in their tenure. Sometimes the challenge comes from equities, as both Greenspan (Black Monday) and Powell (Volmageddon) faced bouts of market volatility that tested the Fed’s response. Other times, it comes from bonds. Volcker, for example, faced a test of his inflation-fighting credibility and ultimately raised rates as high as 20% to restore price stability. Today, part of the rise in long-term Treasury yields reflects uncertainty around the Fed’s evolving policy framework and Chair Warsh’s ambiguity during his first two post-FOMC press conferences. That makes next week’s Jackson Hole speech an important opportunity to provide greater clarity on the Fed’s reaction function. While Warsh is unlikely to offer near-term rate guidance given his desire to move away from forward guidance, more transparency around the framework could help steady markets. • Tailwinds To Growth Will Fade—Despite higher energy prices and subdued sentiment, the US economy has shown remarkable resilience this year, supported by larger than expected tax refunds and robust AI-related investment. As a result, nominal GDP growth has accelerated to 6.5% YoY, its fastest pace since 3Q23, helping push the 10-year real yield to roughly 2.4%, near its highest level since 2008. Looking ahead, however, these tailwinds are likely to fade. With much of the tax-cut benefit front-loaded into 1H26, fiscal support should diminish in 2H26 as the personal savings rate remains near multi-year lows. Higher real yields should also act as a natural brake on activity, helping cool growth without Fed intervention. Early signs of moderation are already emerging. The Citi US Economic Surprise Index has fallen to a four- month low, accompanied by recent downside surprises in employment growth and retail sales. Meanwhile, rate-sensitive areas such as housing continue to face pressure from elevated borrowing costs. While we still expect positive growth in 2026 (RJ GDP estimate: +2.3%), a slower pace of expansion should help cap further increases in yields and support lower Treasury rates in the months ahead. • Inflation Pressures Still Likely To Ease—Heading into the year, the Fed expected core inflation to ease to 2.5% by the end of 2026 as tariff effects faded, paving the way for additional policy easing. Instead, the unexpected US-Iran conflict sent oil prices soaring as much as 86% at their peak…