Macro4Micro

Existing Home Sales June 2026: The Stall is On 7-11-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

The Curve: Steeper, Inflation Anxiety Remains 8-2-26

Glenn Reynolds, CFA — Sun, 02 Aug 2026 18:23:43 GMT

Hear we go again. Another day, another slope conundrum.

The market was not impressed by Warsh’s long-winded noncommunication and smirks with the FOMC news this week. UST shifts have now taken the 30Y UST above the fall 2023 highs while the 10Y UST still has some room to maneuver with mortgage rates just above 6.8% or around 100 bps inside the Oct 2023 highs.
The UST curve shape is relatively common for the 2Y to 30Y UST slope across the cycles and for now is below the long-term median.
The inflation backdrop is a lot more challenging than some earlier cycles, however, given the moving parts of oil, war, and the scale of the deficits. The distance of CPI and PCE from inflation targets is a policy pressure point.
The potential for the AI frenzy to be gut-checked as a speculative bubble overlaps with UST risk in the face of record IG tech borrowing needs to fund the capex. Rising long rates also do not help the growth stock “valuation math.”

The above UST weekly deltas show the steepening beyond 3Y UST to 30Y combined with the rally on the front end as the FOMC made their decision to hold the line. Just a glance at the UST shapeshifting tells a tough story for housing (flow-through of 10Y UST into 30Y mortgages). Duration will bear the brunt and discount rate assumptions on growth stocks could get revisited.

The rising 30Y UST raises questions around the relative mix of variables driving rates higher across inflation expectations, UST supply vs. demand (notably offshore demand questions), or oil risks. This past week’s headline flavor included Japanese yen support and how those funds are sourced. There is always the budget deficit spiral with a spiking interest rate bill, soaring defense costs, and UST supply that will only get worse. Trump’s on/off Iran War escalation threats offer reminders of how easy it is to tack on an unexpected trillion or two on the deficits tab.

The fears of diminished UST demands or net selling offshore cannot be ignored when the US is working hard to get on the “world’s most hated list.” The supply and demand swing factor is always pricing. Trade partner clashes will likely create even more problems with the EU and Canada for UST holdings.

The above updates the post-Iran UST deltas (bombing began Feb 28) as inflation and anxiety over how pervasive energy effects cut across direct energy use (notably gasoline), materials costs (notably petrochemicals and downstream derivatives), and price passthroughs. Oil takes a toll on both headline and core inflation and hits a lot of cost lines.

Even those not around for 1973-1974 and 1979-1981 price spikes can at least remember the Ukraine impact after the late Feb 2022 Russia invasion. Team Trump never brings that up since that might entail deflecting any allocation of blame from Biden or Powell. That invasion did a lot of damage to a global commodity.

The above updates the YTD UST deltas with that move heavily tied to Iran. Duration and quality bond ETFs have been hit with 5 bond ETFs in the bottom quartile in our YTD asset return charts (to be updated and posted later). We see 4 of 7 in negative range with the long duration 20+ UST ETF (TLT) posting the worst return among the 7 bond ETFs at -3.49% followed by the IG Corporate ETF (LQD) with its longer duration posting -1.39% YTD, GOVT at -0.73% and AGG at -0.56%. That was not a winning formula for the bond allocation YTD given the UST curve action.

We include the UST migration chart again this week as a memory jogger on the upward climb from the end of 2020 as the COVID vaccine and ZIRP set off a wave of pent-up demand, risk taking, and supply-demand imbalances in the goods markets.

We roll forward that historical recap of the stimulus and COVID relief actions of the 2020-2021 period in our monthly PCE commentary, so we won’t revisit that one here (see June 2026 PCE: Inflation, Income, and Outlays 7-30-26). The collective weight of COVID, supply-demand imbalances (my favorite is 40% handle CPI on used vehicles and empty lots), and Russia-Ukraine is often downplayed and reverts to just the usual politics.

The bear steepening in 2021 was when the alarms were supposed to be going off at the Fed and notably in the fall as duration was getting pounded. This is where the “too late” criticisms of the Fed stick.

The UST curve took a beating after the 3-1-22 date as noted above. The long walk to 12-31-22 levels is glaringly evident in the above chart with the upper target of 25 bps (0% to 0.25% in ZIRP) moved all the way to an upper limit of 4.5% and a modest inversion at the end of 2022.

Then 2023 took the UST curve from 3M to 10Y to UST cyclical highs that also brought the Oct 2023 high of a 4.99% close on 10-19-23. Mortgages were a shade under 8.0% with some just above that level in that timeline subject to what mortgage survey you were looking at (Note: Freddie Mac typically posts lower rates on quality and structure, see Footnotes & Flashbacks: State of Yields 10-21-23).

As noted in the 7-31-26 yield curve in the chart above, we are moving back into the 2023 zone further out the curve with 10Y still below that peak but the 30Y UST above that period. The question for the UST oddsmakers is how many hikes we will see by year end. What will that mean for the 3M- 5Y UST segment?

There are plenty of questions to ponder. Will oil prices, steady cyclical fundamentals, more tariff pressures, a consumer recovery, and a desire for better wages get the FOMC alarmed? Will we see an upward parallel shift overall, more steepening, or a rise on the front end bringing a mixed flattener? We expect tightening and steepening on the balance of negative factors.

As we go to print, FedWatch is showing a 37.2% probability of 1 hike by the Dec 2026 FOMC meeting with the odds of 2 hikes at 42.1%. The odds of no change are 8.8% and 3 hikes slightly higher at 11.9%. The macro risks would need very bad outcomes for the inflation drivers to get the full curve back as high as Oct 2023, but the 30Y is already past that. The 10Y UST is the biggest threat to the housing market and mortgages, so that gets a lot of focus.

The above adds a few other angles to the migration history but zeroes in a bit more on the start of easing cycle in Sept 2024 when the UST rally saw an impressive move from the fall 2023 highs and the curve rolled into an impressive bull flattener. That market saw the 3M move lower from 9-16-24 while the 2Y to 30Y moved higher (notably in the 10Y to 30Y). The 3.6% 10Y UST of Sept 24 seems like a long time ago.

The late 2024 period into 2025 was an eye opener for many who were handicapping a sustained rally and flattener. Whether it was the underlying macro variables or the expectations that shifted with the election, the UST curve went into serious steepening mode by the end of 2024 on the way to where we are now.

The 2025 performance of the UST has been addressed often, and that also defied many forecasts from very serious market strategists and asset managers for a bull flattener. That most certainly did not play out in 2025 from the fall 2024 period (see The Curve 12-15-25).

The above chart updates the history of the 2Y to 30Y UST slope that has received more than a little attention this past week. We update the historical medians for various curve segments in the box along with the timeline for 2Y to 30Y above. The +99 bps to end last week is comfortably below the long-term median from early 1984 of +121 bps.

The 2Y to 30Y slope has clearly seen dramatic swings across the post-stagflation Volcker years and into the steady rise in rates across the 1980s, the Greenspan easing years of the early 1990s and his post-tech bubble easing of 2001 (see Greenspan’s First Cyclical Ride: 1987-1992 10-24-22, Greenspan’s Last Hurrah: His Wild Finish Before the Crisis 10-30-22). As a reminder, Greenspan ran from summer 1987 to early 2006.

The trick with UST slopes such as 2Y vs. 30Y is to look at the absolute rate backdrop from the FOMC which dictates the short end segment. The ZIRP years and slow normalization before COVID took a lot of years and has distorted what constitutes “high rates.” (see UST Moves: 1988-1989 Credit Cycle Swoon 10-20-23, UST Curve History: Credit Cycle Peaks 10-12-22).

For the 30Y, the key drivers vary from inflation to supply. For example, the absence of supply late in Clinton’s second term helped drive an inversion. A lack of UST supply is not something we are likely to see again in my lifetime (or anyone’s lifetime who is walking the planet today). The steadily growing excess of supply from COVID to today is going to be around for years - and rising.

Some UST curve histories:

Business Cycles: The Recession Dating Game 10-10-22

UST Curve History: Credit Cycle Peaks 10-12-22

Bear Flattener: Today vs. 1994 and Aftermath 10-18-22

Fed Funds, CPI, and the Stairway to Where? 10-20-22

Greenspan’s First Cyclical Ride: 1987-1992 10-24-22

UST Curves: Slope Matters 10-25-22

Greenspan’s Last Hurrah: His Wild Finish Before the Crisis 10-30-22

Wild Transition Year: The Chaos of 2007 11-01-22

UST Slope Update: Some New Inversion Highs 12-8-22

Yield Curve Lookbacks: UST Shifts at Cyclical Turns 10-16-23

UST Moves 1978-1982: The Inflation and Stagflation Years 10-18-23

UST Moves: 1988-1989 Credit Cycle Swoon 10-20-23

UST Moves: The 1990-1991 Risk Factor Pig Pile 10-24-23

Employment Cost Index June 2026: Inflation > Wage Growth

Glenn Reynolds, CFA — Fri, 31 Jul 2026 17:25:12 GMT

Inflation 1^st. Employers 2^nd. Who’s in 3^rd? Wage earners.

The latest employment cost index (ECI) shows 3.4% in compensation cost growth YoY, which is lower than headline PCE and headline CPI. Wage cost growth only stands at +3.2%, and that is essentially negative real wages per the ECI numbers (June 2026 PCE: Inflation, Income, and Outlays 7-30-26, see CPI June 2026: Eye of the Storm? 7-14-26).
Within the broader bucket of the ECI, we see the private sector category posting wages/salaries growth are at +3.1% (before other benefits such as health care). The takeaway is simple: wage earners are screwed. Enjoy the Golden Age.

The above chart plots the quarterly Employment Cost Index (ECI) across the period from 2001 to June 2026. We also detail in the box the most recent headline PCE inflation and headline CPI. We are making the connection to the wage and benefit costs, so the “core” inflation metrics (ex- food and energy) are not the main event here. The frame of reference is headline inflation.

The story is obvious enough. Current inflation is trumping compensation cost growth for employers (and the earnings of workers) of +3.4%. The total employment cost index of 3.4% at 2Q26 is flat to 3.4% in 1Q26 but down YoY from 3.6% in 2Q25.

The wages and salaries component declined to 3.2% in 2Q26 from 3.4% in 1Q26 and 3.6% YoY in June 2025. For private sector wages and salaries only, wages and salaries are at +3.1%, which is down from 3.4% in 1Q26 and from 3.5% YoY vs. the June 2025 period. The State and Local Government numbers push the total ECI number higher given +3.6% compensation and +3.4% wage and salary growth in that public sector grouping.

The above chart frames the ECI vs. the inflation rate, and we should also consider the many line items that are growing much faster in what for many households are priority line items (health care, food, electric, gasoline, insurance, utility bills, rising monthly payments on new borrowing of any type, etc.). Health care premium increases are soaring and have little in common with the “deflation” reported for CPI health insurance by the BLS.

It is easy enough just to consider the cost of gasoline at the pump (and home heating oil as the colder season approaches) in the “affordability” topic but there is a long list of items to trace. This is the “cash in, cash out” challenge that has seen savings rates plunge and household balances sheet weaken.

“Affordability” is not a “made up” topic as Trump claims. It is just math. “How much do I make?” vs. “How much do I need?” is not rocket science (Hassett can keep working on it). As the chart shows, it was worse in 2022, but it remains bad. The political claims do not change the basic fact. Inflation has gone higher from Dec 2024 and is now above wage growth. It is still a problem.

The gap between wages/compensation and inflation is not to be ignored. The best period for the wage earner in this comparison was the period after the financial crisis, but there were plenty of other problems to offset any real wage advantage (notably employment risks and home price collapses).

This in theory is the point where markets consider how wages will need to trend, and political interests can restart debates on the minimum wage level (which always lose in Washington). “Wage-price spiral” is a worrisome term that has not been in the picture yet as the data above demonstrates in wage trends. The question will be how that might change or what the political toll will be if it doesn’t get better.

Producer Price Index June: Still Hurts…Just Less 7-15-26

June 2026 PCE: Inflation, Income, and Outlays

Glenn Reynolds, CFA — Thu, 30 Jul 2026 21:07:29 GMT

You never got me down Ray

After a 0.5% 1Q26 for PCE growth and the same +0.5% for both Services and Goods, the 2Q26 GDP advance report showed a solid rebound with the monthly PCE release also showing May and June with PCE comebacks. The consumer took some blows but is still swinging.
The main takeaway for the two releases today (GDP and PCE) is that inflation is a long way from target rates but the consumer and corporate sector are hanging tough.
For the June monthly PCE price data, we see 3.7% headline inflation and 3.3% core PCE price inflation. The most notable product bucket is “Energy Goods and Services” at +15.8% for June after +24.3% in May and +18.3% in April. Goods was +3.7% and Services also +3.7%. “Services ex-Energy and Housing” was +3.8% with Housing at +3.2% as measured by the BEA.
The 2Q26 inflation data brought uglier metrics. The inflation story has not been as friendly for the curve as the consumer demand trend and price pressure go somewhat hand in hand. The 2Q26 PCE price index reported with GDP was +5.1% (+5.7% for gross domestic purchases) while core PCE for 2Q26 weighed in at +3.4%.
The annual rates on prices for “gross domestic purchases” (Table 1.6.7 in GDP report) really rang the bell for 2Q26 with 5.7% headline, 5.1% PCE and lines such as +114.6% for “gasoline and other energy goods,” +8.3% on Goods, +5.0% on Durable Goods, +10.1% on Nondurable Goods, +13.1% on “Information processing equipment” (+29.8% on the sub-category of “Computers and Peripheral Equipment”). The headline Equipment category of fixed investment at +5.6%.

The raging bull visual at the top of this commentary may not apply to the consumer, but the theme works given what has been going on in the stock market. The consumer being resilient and fixed investment lines driving a lot of multiplier effects in related goods and services (notably financial services, materials, transports) gets back to the concerns around inflation and the absolute UST rates and steepening risks where higher 10Y and 30Y rates could take a toll (notably on housing and growth stock valuation inputs).

The above chart frames the timeline for “effective fed funds minus Core PCE.” For this latest June measure, we see the differential at +0.3% vs. the long-term median of 1.4%. It is a safe statement that current levels are almost a case of accommodation at a time of inflation peril. If one sees inflation moving higher and demands from the White House to take rates lower, the economics class students could realize there is no need to study (cue Queen singing “nothing really matters”). Fed funds minus the headline PCE price index was negative last month and is now a virtual tossup.

The Warsh wildcard just had its second test with the takeaway being “eloquence without any information.” Warsh brings the intrinsic advantage of running no risk of being right or wrong since he offers no expectations at this point. The combination of his communication policy and the well-recognized Trump pressure to ease was a UST steepening reaction. Such a curve scenario could bring some tech equity valuation damage and hammer housing even more with the 30Y mortgage reaction. The 30Y mortgage rates per Mortgage News Daily peaked last week at over 6.8% but as we go to print is back just under 6.8%.

FedWatch odds of an FOMC easing by the Dec 2026 meeting had essentially been zero but now the odds of no change by Dec 2026 are 17.7%. The latest odds of 1 hike are 45.2%, 2 hikes at 31.0%, and 3 hikes at 6.1%. Those odds will swing around with Iran, oil and inflation readings. The trend has generally been going badly for the easing scenario and Iran events (and now Yemen and Iraq) will remain in flux.

June numbers have been easier on energy than what has since unfolded in July. Refined product pricing has been far more destructive than oil moves even as oil prices tailed off. Diesel gets a lot of airtime for its adverse effects.

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (well below the current 3.7% for June after 4.1% in May following 3.5% posted in April). The 2.6% Core PCE median is well below the current 3.3%.

That 4.1% headline PCE for May 2026 eased back to 3.7% in June. That level is dramatically better than where we came from in July 2022 at 7.1% PCE, but it is still well above the 2.0% target and potentially going in a bad direction from here subject to oil but also the cyclical demand for labor and wage trends. So far, that wage pressure has been in check.

In the context of 2025-2026, the headline PCE price index was 2.6% in Jan 2025 to start Trump 2.0 before the ensuing moves higher. Iran was the dagger and is flowing into a range of PPI, Goods, and Services lines as the effects reverberate. Oil and downstream effects are pervasive across the economy from operating costs on farms to freight and logistics to petrochemicals and materials costs including metals and mining.

This is a “replay slide” that we use as a reminder on how the 2.0% target inflation rate frames up across the cycles.

We include the 1997-2026 timeline above as it offers a useful frame of reference on the PCE target of 2.0% that is routinely discussed by the Fed and in the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s. We will see what comes out of the Warsh working groups in their reviews of Fed policy.

The “1997 to 2026” period presents a rare stretch at or below the 2.0% target PCE line and Core PCE median as noted in the chart. It took a lot to go wrong in that time horizon at the systemic level and in terms of macro shocks to cross below or at that 2.0% threshold.

The events along the way included tech bubbles bursting in 2000-2001; oil crashes in the late 1990s and in the late 2014 to early 2016 period; and a bank system crisis from 2008 to 2011 (including a global dose of sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

That gets us back to the debate over what is the correct formal inflation target or the “closet target” somewhere above 2%. There is not likely to be a formal change in the target, but the current backdrop would be missing it regardless and going in the wrong direction. Warsh cites what is to “left of the decimal” (i.e. “2” or “3”). As of now, he is at “3” left of the decimal but only weeks away from it recently being at a “4.” Warsh is leaving himself a lot of room even as he buys time.

The above chart frames the long-term differential history between PCE and Core PCE since 1972. The long-term median differential is zero and we are currently at +0.4%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s.

We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and electricity inflation have been near the top of the affordability political rage-fest in this cycle. Households have been hit hard by energy costs (gasoline and electric bills and indirect impact of freight and operating costs rising in just about everything across food, goods and services).

The power demands of data centers are going to keep that energy and power line item in the headlines and notably as data centers get pushback in the states given power needs/costs and environmental effects. Life will get sticky in AI and the related ecosystem if the electricity topic cannot be addressed. The phrase “infrastructure bottlenecks” is getting tossed around a lot. That will impact valuation assumptions and pricing power questions.

With an oil spike and uncertain direction of the Mideast war, the inflation history on the other side of such events is a very bad one. All we need to do is look back at late 1973-1974 (Arab Oil Embargo) and again in 1979 (the original “Iran oil crisis”) on the way into the 1980-1982 double dip. Much of what unfolded after 1979 was closely tied to refined product inventory management. That period crushed many mature manufacturing industries and led to wholesale restructuring alongside wide deregulation. The industrial and services diversity and credit profiles now are much different and much healthier than the Volcker period.

The above time series plots headline CPI vs. PCE across time. The debates around which inflation metric is the best is something more for the faculty club types, but the above chart drives home how each has behaved across time. The consumer tends to lock in on affordability and purchasing power – as in the “cash in, cash out” impacts on daily life.

“Higher or lower or stable?” is a good place to start regardless. Any investor should be aware of the line-item trends by product groupings. Relative weights are also useful to help guide the strategic reaction to headline and core inflation metrics.

Food and Energy (i.e. not “Core”) is crucial for the consumer even if the monetary ideologues will carry on their views around inflation as narrowly defined in academic terms. The household experience with prices underscores that consumers care about discretionary cash flow and how their take-home pay frames up vs. their household basket. “Derived metrics” used by benchmarks such as CPI often do not match up with their own checkbook experience (owners’ equivalent rent, health insurance CPI, etc.). Such metrics matter less to many. They care about the reality of increasing health insurance premiums or loss of health insurance, as well as the financing costs for their big-ticket purchases (e.g. autos, homes, boats, appliances, etc.).

Financing costs also are not captured in CPI metrics for Goods. The best example is monthly car payments and monthly mortgages, and the UST curve is not helping at this point. Despite that reality, autos are doing well and home prices are only gradually starting to feel downward pressure after a big post-COVID spike.

Note:

The following is a recurring commentary we roll forward for new readers and students on the history of the COVID relief and stimulus plans and how that rolled into inflation. Please skip this section if you have read it before. The lies and distortion never go away when talking heads in political circles or related media do their soundbite specials.

The above chart is something of a “replay chart” we include in updates as a reminder that political theme-spinning out of Washington on economic cycles and inflation are usually stacked with selective memories, false statements (aka self-serving lies), material omissions, and conceptually anorexic story telling (like “seller pays the tariffs”).

The above chart updates the trend line in disposable personal income (DPI) vs. personal consumption expenditures (PCE) that we get with each monthly PCE release. We like updating this chart each month to offer a reminder of what really happened given the waves of disinformation from the current administration. Revisionist history is one thing, but it is good to challenge gross falsehoods and misstatements with facts and history.

PCE growth vs. DPI…

When PCE growth exceeds DPI growth (or negative DPI), as we often see, one conclusion is that many consumers are feeling good (i.e., ignore the sentiment metrics). Or perhaps they are tapping credit cards by necessity (e.g. the PCE could include outsized health care premiums put on their credit cards?).

We have been watching the rate of ACA dropouts and premium increases and shift to higher deductible plans. Health care is a mess and not clearly captured in the headline data. It all adds up to less cash flow at the household level, more borrowing (in some cases), and zero-sum effects on other outlays. Thus any softening PCE numbers in the GDP updates tell a story. We saw trouble in personal consumption in 1Q26 (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26). As detailed in 2Q26 GDP and herein, we are seeing a rebound (see 2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26).

The stimulus overload of 2021…

Talking heads in Washington will “play pretend” around what happened in the COVID tunnel of 2020-2021 and what unfolded coming out of that tunnel. That was a lot of structural imbalances and supply-demand dislocations for the economy to absorb.

The 2021 period was a big macro rebound in GDP off the COVID peak period. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike ensued.

Oil was a problem after the Putin invasion of Ukraine in late Feb 2022, and inflation hit a high in June 2022 at +9.1% for CPI as a headline grabber (headline PCE at +7.1% in June 2022) before the steady inflation slide to under 3% by the end of 2024. Core PCE had dueling peaks at +5.6% for Feb 2022 and Sept 2022.

Try to get Team Trump to even mention the oil price spike in 2022 as a factor in the 2022 CPI numbers. The questioning on the topic by mainstream media is also lame. The CNBC team does not push such Q&A since they are looking to take GOP interview share away from Bartiromo and Fox. They need the GOP guests to keep coming back. Tough questions don’t help that priority.

The COVID relief binge…

The above chart plots MoM Disposable Personal Income vs. PCE and offers a read on how wild things got during and right after the pandemic peak. This is a chart we use each month to revisit the DPI swings that came with the three COVID relief/stimulus packages. That included two COVID relief bills under Trump and one under Biden.

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentions that Dec 2020 one since it is easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue it was over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

As a reminder, the COVID vaccine was announced in early Nov 2020 just ahead of two stimulus actions. That was soon to be a factor in PCE patterns and lag effects. The quarterly GDP numbers in 2021 on the post-COVID bounce were numbers generally not seen since the Reagan and Clinton years (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. We clearly face some supply pressures in the post-Iran period for oil and gas, refined products, fertilizers, aluminum, and numerous other inputs generating headlines (helium, sulfuric acid undermining copper production). Some shortages also undermine military readiness.

Tariffs, unit costs, and pricing decisions…

In terms of tariffs, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. A “peace at all costs” strategy by the EU and USMCA partners has mitigated the damage, but that de facto submission could come back to haunt some major trade partners if other leaders run for office with a “get tough on Trump” election pitch. Caving in to Trump on tariffs is getting less popular in the EU and Canada. Trump is also pushing his luck after Iran in attacking allies.

Jacking up aluminum, steel, and copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs under Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. Trump recently fired a shot across the EU’s bow aimed at German autos. Then he frame 50% tariff threats on Canada that will unfold in coming weeks.

We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. Those EU talks are now in jeopardy again. Other actions brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture (seriously, upholstered furniture)

The most important development in the tariff area was the SCOTUS decision on IEEPA. Trump has launching tariffs under Section 122 laws and initiating more Section 301 actions (unfair trade) to maximize his flexibility with Section 232 (national security) also in the playbook. He has already been hit with setbacks in court. Trump’s goal is tariff revenue maximization for his discretionary deployment and not economic efficiency.

Trump’s latest gambit uses a Smoot Hawley (1930) provision (Section 338) that allows him to use legislation on the books without consulting Congress. Smoot Hawley is viewed in most circles as one of the most self-destructive pieces of legislation in US history.

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income.

We like to include this chart in the PCE updates just given the heavy mix of disinformation and politically axed story lines we constantly hear from Trump on Biden being the cause of all the macro problems even at the end of 2025 and into 2026.

Accurate factual and conceptual frameworks of “the now” matter more than qualitative political spin looking backwards. That said, having a sense of what the numbers were then helps clear up the misinformation nonsense. After all, this is a very different world of tariffs and top-down government policy with very different tax structures and priorities.

The good news from the turmoil of the 2022 tightening cycle and transition into 2023 was that unemployment stayed low, PCE recovered, and a recession was avoided.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2020 through June 2026. It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE.

One exercise to do from time to time is to look at the table of reconciliation in the monthly PCE release for the granular dollar amounts on each DPI reconciliation line. The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings. PCE had been running ahead of DPI in recent months.

It is always worth remembering that a tariff is a regressive tax that hits lower income consumers harder and the same for small businesses. The same is true in Medicaid costs based on the income brackets of Medicaid users. A loss of health care benefits and higher pharma costs present a zero-sum game with other consumption lines. The current trends in ACA premium spikes will also be a zero sum “game” for many budgets. Households have shifted to high-deductible plans or even ceased health care coverage entirely to “take their chances.” That is when consumers take on open-ended risk to medical care cost inflation.

This is where the “K recovery” can start to break down and create challenge to PCE growth and consumer credit quality. That has not shown up in the macro numbers on a broader scale at this point even as household budgets and balance sheets are getting stretched.

The above chart updates the running savings rate reconciliation that comes with the Personal Income and Outlays each month. We see a fresh low in June 2026 of 2.7%. That is the lowest savings rate during the Trump Administration.

The “Why?” of declining savings rates can be like a political Rorschach test on “buying on happiness” or “getting slammed on the prices of the household basket, tariffs and financing costs.” That is, some consumers may need to borrow to meet basic bills in the realm of the nondiscretionary.

The savings rate dipped below the 4% line in Oct 2025 and posted 3% handles and edged back above 4% for one month (Jan 2026). That savings rate decline can be a function of various forces, but the inflation trends (health care premiums, gasoline, home heating, and financing costs) and related household cash drain are eating more into real wages and the household bottom line.

Market Commentary: Asset Returns 7-27-26

Yield Curve: Vegas Odds Keep Moving 7-26-26

New Home Sales June 2026: Soft Pricing, Tepid Volumes 7-25-26

Synchrony: Consumer Bellwether Reassures on Quality 7-23-26

Earnings Season Beckons: Homebuilder Stock Returns 7-20-26

Earnings Season Beckons: Comparative Auto Equity Returns 7-20-26

Housing Starts June 2026: 5 Units or More is Not a Crowd 7-19-26

Industrial Production June 2026: Sideways Syndrome 7-18-26

Company Profile: Ford Motor and Ford Motor Credit 7-17-26

Producer Price Index June: Still Hurts…Just Less 7-15-26

Existing Home Sales June 2026: The Stall is On 7-11-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

2Q26 GDP: Good Underlying Numbers Despite Headline 1.5%.

Glenn Reynolds, CFA — Thu, 30 Jul 2026 14:57:46 GMT

Stronger than appearances

The 1.5% headline GDP moved down from 2.1% in 1Q26 and rose from +0.5% in 4Q25, but 2Q26 includes a healthy bounce in PCE growth from +0.5% in 1Q26 to +3.2% in 2Q26.
Fixed investment growth is still dazzling, running at a robust +7.0% (up from +6.5% in 1Q26 and +1.5% in 4Q25).
We always look to the consumer (PCE) and investment lines for the “real” story. The usual distortion lines in GDP contribution such as net exports (-1.01% in 2Q26 vs. -0.37% in 1Q26) and changes in private inventory (-0.67% in 2Q26 vs. +0.23% in 1Q26) shave a total of almost +1.7% off the headline GDP.
The Government consumption and investment line also shaved off -0.8% in 2Q26 with underlying moves at the Federal level of -4.1% (+2.4% National Defense, -12.9% Nondefense) combined with the much larger (78% bigger) State and Local line at +1.1%.

The GDP growth below the headline level tells the story with the PCE line being the most important swing in the advance 2Q26 numbers. PCE is a line that is typically 68% of GDP, so that always tops the list. PCE at +3.2% includes an impressive pop of +5.2% in Goods with Durable Goods at +6.8% and Nondurables at +4.4%. Meanwhile, Services was only +2.2% but shows a favorable variance vs. the +0.5% of 1Q26.

The fixed investment line stayed hot at +7.0%, which is impressively above historical levels and up from +6.5% in 1Q26 and +1.5% in 4Q25. Within fixed investment, the Equipment line posted +15.2%, down slightly from +15.8% in 1Q26. Intellectual Property Products growth stayed strong at +8.8% even if down from +13.8% in 1Q26. We even saw Residential Investment get out of the red zone with sustained weakness in housing at least stabilizing.

The usual “distortion lines” were at work again as we have discussed in past GDP commentaries. The “softer” GDP lines include net exports and inventory changes. These can generate minimal to major swings each quarter. The timing of inventory pre-buying and trade flows materially distorted some of the 2025 quarterly moves in dramatic fashion (see links at bottom). For 2Q26, the distortion was just under 1.7 points (-1.0 for trade, -0.67 for inventory). That effect was much smaller than some 2025 impacts but still material.

The classic growth drivers of the Personal Consumption Expenditure growth and Fixed Investment performed well, and it is always a useful drill to check out how much contributions from trade deficits and inventory swings move the needle at the headline level.

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

1Q26 GDP Advance Estimate: Consumer Fade, Investment Boom 4-30-26

4Q25 GDP: More Adverse Revisions in the Golden Year 4-9-26

Some “distortion” stories of past GDP reports:

3Q25 GDP: Morning After Variables to Ponder 12-27-25

2Q25 GDP: Second Estimate, Updated Distortion Lines 8-28-25

2Q25 GDP: First Cut of Another Distorted Quarter 7-30-25

1Q25 GDP Advance Estimate: Roll Your Own Distortions 4-30-25

Market Commentary: Asset Returns 7-27-26

Glenn Reynolds, CFA — Mon, 27 Jul 2026 17:29:50 GMT

AI: What could possibly go wrong? Going rogue?

With an FOMC meeting this week, an advance estimate on 2Q26 GDP, fresh PCE news for June on inflation and income and outlays, and 4 more Mag 7 earnings reports with related capex updates, there will be a lot for the market to digest.
As covered in our yield curve update posted yesterday, the news has not been good for duration and mortgages, so the sustained escalation in Iran will remain front and center on UST yields and steepening risks (see Yield Curve: Vegas Odds Keep Moving 7-26-26).
As we head to print today, the odds from FedWatch of no change from the FOMC this week stand at 59.7% with a 40.1% probability of 1 hike. If we look ahead to the odds of FOMC moves by the Dec 2026 meeting, we see 7.5% odds of no change, 31.2% for 1 hike, 38.8% for 2 hikes, and 19.2% for 3 hikes. That is not setting the table for good news in housing or in consumer finance. It also casts a cloud over “valuation math” and bond asset class performance.
On a positive note, corporate earnings remain strong in a busy reporting season, fixed asset investment has been exceptional with a heavy “AI” angle, and the consumer appears to be mending in 2Q26 from a grim 1Q26. Payrolls are steady, but real wage trends are ugly with savings rates lower. Housing is faltering.
The political muck and mire is not helping the legislative uncertainty risk, rational thinking on dealing with Iran is lacking, the direction of the deficit and UST supply is bad, and any hint of better relations with trade partners (notably Canada and EU) is diminished given the potential for tariffs. Ugly relations with allies could curb UST demand offshore, and tariffs could undermine purchasing power/affordability even more.

The trailing 1-month period has shown weak performance in both debt and equities as noted above. The UST curve has wagged the debt markets with rates rising with returns negative for the trailing 1-month and 3 of 4 negative for the trailing 3-month period. Only the shorter duration credit benchmark of HY bonds is slightly positive for 3 months.

The recent lagging performance in tech is addressed in other charts, but the main themes as we covered each week are the ebb and flow of software, which had mostly been ebbing. That contrasts with the record YTD returns for the semiconductor group even after the material declines of June and a few brief freefalls.

The weakness in NASDAQ and Russell 3000 Growth is evident in the negative returns. The Russell 2000 also faded for the past month after a solid 3-month move and very favorable YTD performance.

The tech bellwethers posted a relatively bad week in 2026 context with a subset of semiconductors posting good number but with 6 of the Mag 7 in the red. The Software ETF (IGV) was in the red while the Semiconductor ETF (SOXX) posted a positive return just below Taiwan Semi (TSM), NVIDIA (NVDA), and Broadcom (AVGO). Looking back for the rolling 3 months highlight the lingering effects from the steep June selloff.

The following is basically a cut and paste with some edits from the update posted on Saturday on LinkedIn:

The chart shows a relatively balanced week for the group of 32 with a 14-18 positive-to-negative score, but it was a rough week for the large cap benchmarks (S&P 500, NASDAQ) and the Russell 2000. The S&P 500 had a very favorable score for the 11 sectors with 8 positive and 3 negative, but Consumer Discretionary and Communications Services were pummeled.

We saw Mag 7 getting hit hard as evident in some bellwether ETFs (XLY, XLC). Amazon (AMZN) and Tesla (TSLA) dragged down the Consumer Discretionary ETF (XLY) in last place while Meta (META) and Alphabet (GOOGL) took Communications Services (XLC) down to 2nd to last. XLC also was held back by Comcast (CMCA), T-Mobile (TMUS), and Warner Brothers (WBD).

The Mag 7 had only one name in positive range for the week with NVIDIA performing well but TSLA in dead last on our tech check list by a hefty margin at -17.8%. We look at the Mag 7 names in our separate tech check weekly return update.

The tech lines also see a mixed recovery in the semiconductor names that pulled the Tech ETF (XLK) higher in this group of 32. Despite the semis, the broader NASDAQ was mired in the bottom quartile, where it was joined by the Equal Weight NASDAQ 100 ETF (QQEW). Intel (INTC) was a notable exception in semi performance as its earnings report did not reassure. These days it seems if you raise capex people worry. If a major player cut capex, it could start a crisis.

Bond ETFs saw all 7 names in the red as the UST curve focused on noisy oil headlines, inflation fears, and renewed anxiety around UST supply risk. The PCE inflation numbers and FOMC meeting could create some new excitement this week, but the setback in Iran will have more looking ahead to July CPI and PPI numbers as oil has pushed higher again.

Among the winners, we see energy related ETFs in 3 of the top 5 slots with Energy (XLE), E&P (XOP), and Midstream (AMLP). Rounding out the top 5 were the Utilities ETF (XLU) and Industrials (XLI). The top quartile included Materials (XLB), Real Estate (XLRE), and Health Care (XLV).

On a mild, positive note for homebuilder exposure in the face of 6.8% handle mortgage rates, we see the Homebuilder ETF (XHB) stay in positive range in what has been a lower volatility sector of late. Pulte and DHI reported numbers that did not alarm despite the industry’s softer backdrop.

The following is basically a cut and paste with some edits from the update posted on Saturday on LinkedIn:

The chart updates the 32 asset lines in our tech check list of benchmarks, industry ETFs, and single names. The score of 13-19 was unimpressive with software and SaaS names again heavily in the red. We see 6 of the Mag 7 in negative return range along with NASDAQ, the S&P 500, and Russell 2000 in negative range. Only NVIDIA (NVDA) of the Mag 7 broke into the positive range for the week.

The most glaring outlier was Tesla in dead last with -17.8% or almost double the negative return of Oracle (ORCL) in 2nd to last as ORCL continues to struggle in 2026. The bottom quartile also includes Meta (META), Alphabet (GOOGL), Palantir (PLTR), Amazon (AMZN), the Software ETF (IGV), and Adobe (ADBE).

The Semiconductor ETF (SOXX) was in the upper end of the 2nd quartile with +1.0% as some major names such as Intel (INTC) were holding it back. INTC posted a -2.86% from the prior Friday close but was -14% intra-week with its earnings. The earnings tone some days seems to be higher capex is a problem even while lower capex could be a tragic setback in bullish growth scenarios built into valuations.

Among the AI ecosystem, the best performer was Dell (DELL) at #1 at +10.39% just ahead of Micron (MU) at #2 with Advanced Micro (AMD) holding down #3 with 5.28%. Rounding out the top 5 was Broadcom (AVGO) and Cisco (CSCO) with NVIDIA posting the only Mag 7 positive return just behind it at +1.99%. The only SaaS name to crack the top tier was Intuit (INTU) #7 while Taiwan Semi (TSM) wrapped up the top quartile.

We see a range of the numerous software and SaaS-based services names including half the bottom quartile with the other half from the Mag 7.

The 1-month period for the broader mix of 32 asset lines posts a balanced score of 15-17 with tech struggling for that period and the 7 bond ETFs showing 6 of 7 in the red with the short UST 1-3Y ETF (SHY) barely positive.

The bottom quartile has the Homebuilder ETF (XHB) on the bottom on mortgage rate pressure and weak macro color on housing. We also see Consumer Discretionary ETF (XLY) in second to last with Amazon and Tesla both in the red among major holdings. Semiconductors had a weak stretch during the volatility and that pushed the Tech ETF (XLK) into the bottom quartile.

Among benchmarks, NASDAQ and Russell 2000 ended up in the bottom quartile while the S&P 500 and Midcaps worked their way into the lower half of the second quartile.

It is not a surprise that the setbacks in Iran handed the first 3 slots of the top quartile to the energy lineup with E&P (XOP) at #1, Energy (XLE) at #2, and Midstream (AMLP) at #3. Rounding out the top 5 is Health Care (XLV) and Financials (XLF), where the major banks and regionals have posted some very steady and solid results.

Regional Banks (KRE) were just across the line at the top of the 2^nd quartile. In addition, the BDC ETF (BIZD) made it into the top quartile ahead of their main earnings wave ahead. Real Estate (XLRE) made the top quartile in a good sign for how real estate is viewed.

The 1-month performance of the tech check mix highlights the retrenchment after an amazing ride higher. A notable example is Intel (INTC) in last place after its earnings report even with strong earnings as some capex jitters always seem to surface. INTC was down by -29.87% for the month. That stock hit came after the 2Q26 earnings report beat estimates and was still banner success material. That said, INTC is still up by +150% YTD.

For tech, the AI ecosystem is in a place where rising capex can make investors nervous, but any hint of a pullback in capex might generate a crisis on the idea that “they must see something.” Any signs of the hyperscale giants stepping back or data center setbacks at the local level taking on a larger scale would challenge the unbridled optimism around investment in the AI ecosystem.

The 3-month returns for the broader group of 32 benchmarks and ETFs posts a score of 20-12. The bottom tier shows the Communications Services ETF (XLC) on the bottom with Consumer Discretionary ETF (XLY) in a near tie as both were dragged down by Mag 7 weakness.

We see the same mega cap and concentration challenge facing both XLC and XLY in the YTD performance chart that follows. The Mag 7 headwinds for XLC include Meta (META) and Alphabet (GOOGL) with large issuer concentrations while XLY numbers faced challenges from Tesla (TSLA) and Amazon (AMZN). TSLA, META, and AMZN were in double digit negative range while GOOGL managed high single digits in the red. XLC had the added pain of Netflix (NFLX) with around a -23% return over 3 months.

The adverse UST curve shift hit high quality and longer duration bond ETFs with 4 of the 7 in the bottom quartile and 6 of 7 negative. Only the short duration UST 1-3Y was positive (but essentially 0%). We also see the Base Metals ETF (DBB) as the brief easing in the Strait crisis offered some relief that may go in the other direction now.

The winners in the top quartile showed breadth of subsectors with Health Care (XLV) on top followed by Regional Banks (KRE) and Tech (XLK) in the top 3. Rounding out the top 5 were Financials (XLF) and the Equal Weight NASDAQ 100 (QQEW). XLK and QQEW offer a reminder of how strong the performance was in the spring given the beatdown that unfolded in June and recent weeks for numerous tech names. We also see Transports (XTN), Midstream Energy (AMLP), and Industrials (XLI) in the top tier.

There is no getting away from the fact that 2026 has been a great year for many equity subsectors. The score of 26-7 includes 4 bond ETFs among the 7 negative returns. The BDCs (BIZD) have moved up to 3^rd to last and even made into the top quartile for the trailing 1-month.

The big winner YTD include E&P (XOP) at #1 with Energy (XLE) at #2 and Transports at #3 with no Tech (XLK) showing up until #4 just ahead of Midstream Energy (AMLP) at #5. On a favorable cyclical note and some reassurance in breadth YTD, we see the Russell 2000 small caps at #6 with Industrials (XLI) and Regional Banks (KRE) wrapping the top quartile.

The wild year for tech is very in evidence with the “Tech Check” mix showing dazzling winners as well as devastating losers. We see 5 names of the AI ecosystem in triple digit returns with Dell at #1 at +247.5% followed by semiconductor-related names in the next 5 slots which includes the Semiconductor ETF (SOXX) at #6. Rounding out the top quartile was legacy leader Cisco (CSCO) and Taiwan Semi (TSM).

The theme of AI displacement and SaaS business model eradication hammered the software and SaaS based services names across the spring and into summer. The Software ETF (IGV) at -16.7% in the 3^rd quartile shows a 91.7 point return differential below the SOXX ETF.

More than software has taken a hit with IBM as a legacy diversified player now also in the bottom quartile YTD. We see the bottom quartile running from -27.6% for IBM at the high end of the bottom quartile down to Intuit (INTU)at -55.3%.

The 1-year score remains impressive at 29-3 but with 2 new additions to the negative ranks this week with the Consumer Discretionary ETF (XLY) and the Communications Services ETF (XLC).

XLY is feeling the pain of some consumer weakness LTM. TSLA was a modest negative over 1 year in the -5% range while other losses among major holdings included Royal Caribbean (RCL), Booking Holdings (BKNG), McDonald’s (MCD), Home Depot (HD), and Lowe’s (LOW) among others. Iran fallout did not help travel costs while the 1Q26 period offered fairly glum personal connumeration growth trends.

XLC is feeling weak returns at META at almost -16% and Netflix (NFLX) around -40%. XLC also saw weak LTM numbers from Disney (DIS), Comcast (CMCSA), and T-Mobile (TMUS) also taking a beating.

New Home Sales June 2026: Soft Pricing, Tepid Volumes 7-25-26

Synchrony: Consumer Bellwether Reassures on Quality 7-23-26

Earnings Season Beckons: Homebuilder Stock Returns 7-20-26

Earnings Season Beckons: Comparative Auto Equity Returns 7-20-26

Housing Starts June 2026: 5 Units or More is Not a Crowd 7-19-26

Industrial Production June 2026: Sideways Syndrome 7-18-26

Company Profile: Ford Motor and Ford Motor Credit 7-17-26

Producer Price Index June: Still Hurts…Just Less 7-15-26

Existing Home Sales June 2026: The Stall is On 7-11-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

The Fall of CBS 6-3-26

Yield Curve: Vegas Odds Keep Moving

Glenn Reynolds, CFA — Sun, 26 Jul 2026 22:08:29 GMT

What happens in the Fed Chair’s thoughts … stays in the Fed Chair’s thoughts.

A big week lies ahead with the FOMC and Warsh getting another test in “communication” (or absence of). The market gets the first estimate of 2Q26 GDP, a fresh read on PCE inflation (with income and outlays), and the countdown begins on trade partner responses to the deluge of new tariffs under dubious (but legal) standards.
The UST curve had another bad week and is moving closer to the Oct 2023 highs than to the end of 2024. Mortgages are creeping closer to 7% with over 6.8% to end the week in the broader Mortgage News Daily survey.
The Vegas odds (FedWatch) on FOMC actions as we go to print shows a 62.1% chance of unchanged fed funds for this week’s meeting and odds of 37.9% for 1 hike this week. Looking further ahead to the Dec 2026 FOMC meeting, the odds of no change are down to 6.9% with 1 hike at 32.3%, 2 hikes at 39.7%, and 3 hikes at 18.3%.
The oil wildcard is a major challenge to manage in the best of times. Past stagflation experiences (4Q73-1Q75 recession, 1980-1982 double dip) are hard to ignore even if many conditions today are starkly different. Oil matters from household cash flow to power costs to raw materials and always with an eye on how to recover higher costs (pricing power, etc.). The choice away from price increases would be lower profits or use cost offsets (payroll? capex?) at a time when tariff costs are also rising.

The above chart details the weekly UST deltas. All 7 bond ETFs we track on our weekly asset return commentaries turned up negative on the week given this adverse shift.

The post-Iran UST deltas are updated above (the bombing started on 2-28-26), and there is little mystery around what unfolded with an ugly bear flattener from 2Y to 30Y. That bearish shapeshifting hits consumer financing costs while punishing long duration assets. Mortgages have moved further away from the 6% line and closer to 7% with the 10Y UST being the driver of 30Y mortgages.

The above chart updates the YTD UST deltas with the worst of the damage coming after Iran and as inflation moved higher and saw 4% headline CPI and PCE handles breached in May. That came ahead of what is now looking like temporary relief in June (see CPI June 2026: Eye of the Storm? 7-14-26, Producer Price Index June: Still Hurts…Just Less 7-15-26). The oil pressures of July will show up in the next inflation releases in August. This week gets the PCE inflation release for June

The chart highlights how the UST curve has migrated since COVID to current times across some hiking, easing and now possibly back to hiking. The latest UST yield curve numbers are very close to the Oct 2023 peak when the 10Y UST and 30Y mortgages hit cyclical highs. That peak 10Y UST in Oct 2023 just missed 5.0% but hit that level intraday on 10-23-23.

The UST curve currently is higher than in Dec 2024 from 2Y to 30Y with more pronounced steepening out the curve to the 30Y. The short end is lower now than in late 2024 based on the 2025 easing actions. We detail the hikes, easing actions, and dates in the boxes.

Market participants can debate what is driving the curve higher since Dec 2024 (Biden’s last full month) across inflation, tax breaks, tariffs, oil, soaring UST supply vs. global demand, and record interest expense even with more deficits ahead to fund.

The main point is not who wins that inflation debate (nobody has won that since the 1970s, so good luck), but the market votes on how the factors all roll up into market clearing levels. That is not what drives bond and portfolio performance – not politically motivated double talk. As we saw this past week again, the trend has been bad for bonds. The YTD numbers on 4 of the 7 bond ETFs we track show high quality bond ETFs in the red YTD (TLT, LQD, GOVT, AGG). Rising longer rates can also flow into growth stock valuations, hurt mortgages/housing, and impact consumer credit costs at a time of strained affordability and borderline negative real wage growth with declining savings rates.

A very brief summary of the timeline in reverse chronological order:

July 28-29, 2026: We have an FOMC meeting this coming week with FedWatch showing an overwhelming odds bias favoring hikes through the Dec 2026 FOMC meeting. Chaos in the Gulf and the Iran War is not helping.

Dec 2024 to July 2026: Spin the partisan to-and-fro any way you want, but rates are higher now than Dec 2024 beyond 2Y UST. The direction of the 10Y and 30Y is bad news. Depending on Fed action, the lower rates from 3M to 1Y could be narrowed vs. Dec 2024 if the odds-on favorite hikes unfold. Dec 2024’s upper bound was 4.5% vs. the current 3.75%.

3-1-22 to 12-31-22: ZIRP was scrapped in mid-March 2022, and the year was a grim one for risky assets even if the much-expected recession never arrived. Personal Consumption stayed positive in 2022 and unemployment stayed low. PCE growth ramped up in 2024.

12-31-20 to 12-31-21: ZIRP was in place, the vaccine wave was on (thank God RFK Jr. was not in power), consumers were pent up, risky assets were soaring, refinancing and extension of liabilities brought joy in the form of low coupons, housing took off, refinancing of mortgages brought household cash flow benefits, and “perceived” growth stocks soared (Peleton?!). The yield curve steepened as bondholders saw the Fed was late to the inflation party as easy money and supply-demand imbalances took a toll.

The above chart is another busy one, but it does offer a lot of historical reference points for what UST curves looked like at cyclical peaks or as they approached the doorstep of bad times (in some cases brutal recessionary times). The rule of thumb is that a flat curve later in cycles sets the stage for potential struggles and it is wise to step carefully.

We highlight the 9/16/24 yield curve above that came just before the September easing. Many market watchers had a bullish view on the curve going into 2025, including the long end. That certainly did not play out as we have covered in earlier commentaries. As we moved into 2025 and 2026, we saw rates move higher along with the steepening. It is safe to say that the market will be highly sensitive to tightening moves and raising the front end.

Of course, when worries really pick up we can see a UST curve flattening start to invert as more portfolios buy UST, reduce risk, and get more defensive. Watching for signs of fundamental weakness becomes very important. The good news is that the US economy is so large and diverse and services oriented that it takes waves of problems to drive macro contraction risk.

These periods in the chart cover a lot of cyclical timelines that saw structural changes, regulatory evolution (banks vs. brokers, etc.), periodic bouts of asset excess, diverse credit cycles (including reckless underwriting), and a slew of sector themes (commercial real estate, autos, banks, TMT, RMBS, structured credit, etc.) from Carter to Trump. We look at a range of them in yield curve context in the links below.

The action in the chart starts in the late 1970s, cuts across the double-dip stagflation bout of 1980-1982 and then into the Reagan bull markets. The wide array of mishaps from 1989 to 1992 (hung bridge loans, Drexel collapse, commercial real estate excess, bank turmoil, etc.) moved into the Clinton boom years and then eventually into a tech bubble.

Then came new millennium adventures when derivative counterparty risk and structured credit took bank/broker interconnectedness and leveraged risks and systemic threats to new heights. The bank system crisis is a long story that the typical coconut in Congress has a few party line talking points to use (“Wall Street greed” or “Let the markets work, no bailouts” or “Wall Street vs. Main Street,” etc.). There is always a lot more to the stories and events of the time.

The following links cover the background of a range of UST curve shifts and some of the historical UST slope shapeshifting from Volcker to Greenspan and the later parade of Fed Chairs.

The Fed gets so much coverage it is hard to escape, but knowing what came before can help sort out some of the revisionist “modifications” of history.

Greenspan’s Last Hurrah: His Wild Finish Before the Crisis 10-30-22
Wild Transition Year: The Chaos of 2007 11-01-22
Bear Flattener: Today vs. 1994 and Aftermath 10-18-22
UST Moves: The 1990-1991 Risk Factor Pig Pile 10-24-23
UST Moves: 1988-1989 Credit Cycle Swoon 10-20-23
Greenspan’s First Cyclical Ride: 1987-1992 10-24-22
UST Slope Update: Some New Inversion Highs 12-8-22
UST Curves: Slope Matters 10-25-22
Yield Curve Lookbacks: UST Shifts at Cyclical Turns 10-16-23
Fed Funds, CPI, and the Stairway to Where? 10-20-22
UST Moves 1978-1982: The Inflation and Stagflation Years 10-18-23
UST Curve History: Credit Cycle Peaks 10-12-22
Business Cycles: The Recession Dating Game 10-10-22

New Home Sales June 2026: Soft Pricing, Tepid Volumes

Glenn Reynolds, CFA — Sat, 25 Jul 2026 18:49:54 GMT

I think I’ll pass…

The latest new single family home sales release from the Census shows a slight sequential MoM increase of +1.6% but down by -5.6% YoY. The 628K was lower than 2H25 and 3^rd worst in the LTM period.
The critical South region (65% of sales) ticked +9.9% higher MoM but was down by -1.4% YoY. The #2 US region in the West (17% of total) was down by -22.4% MoM and -24.6% YoY. That geographic mix shift was enough to pressure the median prices lower to $398.3K in June from $412.0K in May.
The monthly mortgage payment strain for new or existing homes will not see relief with mortgages at 6.8% after the expectation of getting back down to 6.0%. Massive increases in US budget deficits, UST supply anxiety, and an escalating US-Iran conflict devoid of realistic exit strategies is not making life easier for the housing sector with tariff disputes doing damage to the supplier chain.
This week we get the FOMC meeting, the advance estimate for 2Q26 GDP, and the PCE inflation and income and outlays release. The expectation is that PCE growth for 2Q26 will rise off the abysmal +0.5% of 1Q26.

The above chart updates the new single family home sales series from 1963, and the current 628K (SAAR) is only slightly below the long-term median (636K) and modestly above the revised May 2026 tally of 618K (as revised).

The median of 989K in the housing boom/bust cycle from 2001-2009 is almost 60% higher. As we look back to the peak of the housing bubble, we see 1389K in July 2005 at over 2x the June 2026 volume. The COVID panic buying and relocation spree in Aug 2020 saw sales of 1036K in a wild period for new home sales and home starts in a ZIRP market with very low mortgage rates. The market today is facing much higher prices since COVID and 30Y mortgage rates that hit 6.85% this week before ending at 6.81% (Mortgage News Daily survey).

The above chart plots the share of total home sales (new + existing) that were captured by the “new home” builders. We see the share is now at 13.3% vs. the long-term median of 11.6%. When inventory is scarce, the right home at the right price wins. The challenge overall for new home sales has been mixed for builders by region.

Major homebuilders generally continue to report gross margin compression in 2026 and guide to similar expectations for the year. We are seeing lower prices from the builders even if that comes with the asterisk of product tier and geographic mix.

The market edge for closing a sale favors builders vs. existing home sales (note: existing is still the vast majority of sales volume). The homebuilders have the ability to use incentives and financing support (see Existing Home Sales June 2026: The Stall is On 7-11-26), and the homebuilder can tailor packages to close sales.

Given the mortgage rate headwinds undermining volume in the existing home sales market whether “golden handcuffs” or a challenging monthly payment bar to clear for many, the shortage of existing housing inventory at economic all-in costs (price and mortgage rates) has been a recurring drag on that side of the home sales tally.

In new home sales, the gap between the expectations of the seller and buyer is easier to bridge through the incentive programs or the ability to offer variations in home design and specs to make a transaction work.

D.R. Horton as the #1 US homebuilder offers a useful microcosm of the new home challenges (see D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26). The 6% handle mortgage rates have been a struggle and have moved in the wrong direction with more than a few market watchers thinking 7% could still be crossed given the ugly direction of budget deficits, oil prices, and volatile inflation handicapping.

The new home sales volumes are softer with total new homes down by -5.6% YoY. Prices posted this month dipped back below the $400K line. D.R. Horton and Pulte both reported June quarter results this past week and both reported lower average selling prices YoY for the quarter. Average Selling Prices at the builder level come with the asterisk of product mix and region. The builders face the reality that incentives are still a material part of the builders’ selling strategies.

The 10Y UST is the key benchmark for the direction of 30Y mortgages and that has been moving in the wrong direction YTD. The oil wildcard could ease pressure on the longer end of the curve if “peace breaks out” but that is not looking good right now.

The “Vegas odds” at CME’s FedWatch shows the odds of no change by the Dec 2026 FOMC meeting at only 7.2% while 1 hike is at 31.5%, 2 hikes at 39.1%, and 3 hikes at 19.0%. That is not pretty. Warsh will need a very creative new data set to erase inflation fear and convince the voters.

The CPI, PCE and PPI inflation metrics have been grim despite the inflation easing in June after May sent headline numbers over 4% (Producer Price Index June: Still Hurts…Just Less 7-15-26, CPI June 2026: Eye of the Storm? 7-14-26). July is undergoing another round of oil market heat, and Iran War setbacks that will flow back into July inflation numbers.

The median home price time series above tells a simple story that prices had been under modest pressure after a period of record highs and a long stretch over the $400K threshold with a few dips below the $400K line. We had another dip below that threshold in June at $398.3K.

The move lower to $398.3K from $412K (as revised) can have a lot of contributing factors from mix to region, but a decline is consistent with the major builders reporting. The South’s lower ASP mix can factor in as a lower ASP region, but the “South” by itself has a very wide range as well. The South posted a +9.9% sequential MoM increase in volumes (-1.4% YoY) while the West was down sharply by -22.4% MoM (-24.6% YoY).

The above chart gives a different visual angle on the median new home sales prices from early 2022. That is a lot of $400K handles with some sub-$400K outliers. The June 398.3K posted is more in line with the $398.7K in March.

The price metrics can shift with regional mix as well as home price tiers and related supply issues. The affordability question is still more intertwined with the monthly payment pressures from mortgages. It is about more than price. Those monthly payments are very sensitive to mortgage rates more than home price moves.

The time series above updates the new single family home sales across the cycles since 1973 for the #1 and #2 regions of the South and the West. The 412K for the South is around 65% of the total of all single-family new home sales (SAAR) and marks a sequential increase of +9.9% from April 2026 and is down by -1.4% YoY. The West at 104K is 17% of the total. For the month, the West was down by -22.4% sequentially and by -24.6% YoY. The South is running ahead of the long term median of 313K while the West is below the median.

The timeline for new home sales for the smaller Midwest and much smaller Northeast market is detailed above. The Midwest (13% of total) was +16.2% sequentially and -3.7% YoY. The Northeast market (5% of total) was +3.0% sequentially and +17.2% YoY.

Synchrony: Consumer Bellwether Reassures on Quality

Glenn Reynolds, CFA — Thu, 23 Jul 2026 22:26:48 GMT

The network of partners is the cornerstone of the Synchrony strategy.

We drilled into Synchrony Financial (SYF) in detail in an earlier commentary and we see SYF as a useful indicator of the broader consumer credit quality picture (see Synchrony: Credit Card Bellwether 10-30-25). SYF’s quarterly earnings reports include exceptional granularity in its disclosure, making it an attractive lender to monitor. While SYF is much smaller than a major bank such as Cap One as an entity, SYF’s 68 million customer accounts, $50 bn in purchase volume, and over $100 bn in loan receivables cut across a very wide array of retail channels and touches a products/services mix in its partners network that has impressive consumer breadth.
After 1Q26 GDP posted abysmal growth in personal consumption expenditure (PCE) of 0.5%, the trend line has appeared to firm in the income and outlays releases (see Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26, GDP 1Q26 Final: PCE Growth Plunge 6-25-26). The consumer sector will now face another test with oil spiking again and household anxiety at a possible inflection point if we see more challenges in household income, the job market, or inflation expectations.
Anything that hits household cash flow can compromise asset quality, and the main events there are inflation broadly, higher health care premiums, and the consumer cash flow pressures from the oil spike. The downstream damage from oil is gasoline costs, a diesel spike that flows into surcharges and inflation (freight and logistics, ag sector, food costs, and later in year home heating bills for many). The soaring airline fares also factor into the story line into the peak summer travel season.
The oil price and gasoline spike carries the ironic advantage of driving purchasing volumes higher at the pump. That still puts debt service pressure on customers and in some cases serves as a zero sum effect on customers in other categories. Of course, there is the more obvious risk of accounts simply engaging in more borrowing and saving less. The market has seen savings rates decline in the monthly PCE releases (income and outlays) data.
The headlines around political turmoil and distrust – not to mention election threats –can also disturb consumer habits and cause government shutdowns. The “communist vs. fascist” thing and “savior of Christianity vs. corrupt pedophile” banter is not going to help many moods. Then again, the upper part of the “K” recovery will either keep spending or embrace retail therapy in a world that is going to hell. The problems are in the lower part of the K, so we will keep watching aggregate credit quality metrics from bellwethers such as SYF and volumes and quality coming out of auto finance.

The above chart updates the return performance of Synchrony (SYF) equity against Capital One, Ally, and the S&P 500. We also include the Equal Weight S&P 500 (RSP) to isolate the outsized tech weighting in the S&P 500. The obvious story is SYF wins. If we started the timeline at the end of 2019 ahead of COVID, SYF still wins. We thought the performance starting point from just ahead of the tightening cycle in March 2022 made for a useful frame of reference.

The above chart updates the major operating results line items. The +8% in purchase volume in 2Q26 came with +23% from co-branded cards. Loan receivables only grew by +2% to just over $102 bn while co-branded cards rose by +25%. Average active accounts were essentially flat at just over 68 million.

The strain of borrowing by households is not a new topic, and we cover the provisioning and net interest margins in the broader detailed commentary on SYF. We see an increase in the net interest margin to 15.08% in 2Q26 from 14.78% in 2Q25. The reality for the consumer and an important stabilizing factor for SYF is that a 21.6% yield on loan receivables buys a lot of cushion for market surprises with a provisioning policy that has been shown to be prudent.

The history of SYF goes back a long way from when it was GE’s private card business, and their history cuts across a lot of cycles. The recent years of COVID, an inflation spike, a tightening cycle, and two major oil spikes (post-Russia in 2022, post-Iran in 2026) put SYF to the test. They passed with honors.

The above chart updates the standard asset quality disclosure and moving parts of the allowance coverage and provisioning. The 90-day delinquencies are slightly improved into the low 2% range while charge-offs rate have also ticked lower to 5.43% in 2Q26 from 5.70% in 2Q25. FY 2025 posted 5.65% with 6.31% in 2024.

The allowance coverage ratio of 10.09% continues the low 10% handle balance seen since 2022. Prior to the 2022 decline, SYF saw 12.5% during the volatility of the pandemic period as they braced for impact. As it ended up, the year 2020 only saw 4.58% in charge-offs.

The above table updates the account spending volumes by platform category along with the related interest and fees on loans and the average loan receivables. All 5 platforms showed YoY growth in 2Q26 and in 1H26. Each quarter brings new partners and underscores SYF’s strategy has been working well for both customers and those goods and services companies in the partner ranks.

When you look at the high-level macro releases such as Personal Income and Outlays, we see savings rates declining to multi-year lows. That is consistent with spending firming up in spring 2026. With real wage growth recently hovering around negative or slightly positive, it is safe to say there is some incremental borrowing going on. We see it in the higher purchase volume detailed by platform above and in the total volume numbers seen above in the Operating Results chart.

The “purchase volume” part of the story reassures on consumer appetite to spend, so that is consistent with the old saying of “never bet against the US consumer.” Then again, asset quality trends across the full spectrum comprise a more complex set of issues in the “check-to-check” tier especially. The good news for Synchrony is its asset quality underwriting standards and risk management have held up well across some very unusual periods.

Earnings Season Beckons: Homebuilder Stock Returns

Glenn Reynolds, CFA — Mon, 20 Jul 2026 22:51:04 GMT

You have any entry level homes? Beverly Hills 90210 is out of my price range.

We look at the comparative stock returns of the major public builders across a range of timelines. We leave out a few from our historical collection based on merger activity (Taylor Morrison, Tri Pointe) and takeovers in process (Dream Finder’s unsolicited bid for Beazer).
Berkshire’s acquisition of Taylor Morrison Homes for $8.5 bn in enterprise value ($6.8 bn equity value) offers a reminder of the strong free cash flow profiles of the major builders that BRK tends to favor.
The reporting season will shed some light on where builder selling prices are heading with monthly payments getting uglier and supply issues mixed by product tiers and regional markets. The price pressure has been downward from the builders reporting on ASPs, and those will be interesting to watch by region. The headline numbers in new Home Sales from the Census (due this week) come with the asterisks of region and price tier mix.

The table details the running timeline equity returns on a range of homebuilders. We also include some useful benchmark comps including the Homebuilder ETF (XHB), which includes suppliers.

We line the builders up in descending order of returns for the trailing 1-year period. Toll Brothers leading the pack is no surprise since their customer base is not sweating out mortgage approval or monthly payment pressures (see Toll Brothers Update: The Million Dollar Club Rolls On 8-26-25, Credit Snapshot: Toll Brothers 5-5-25, Toll Brothers: Rich Get Richer 12-12-24).

The regional builders look good (notably M/I) since that tier comes with a growth twist. Pulte Group offers some of the highest margins in the industry, so we will be interested in their numbers when they report this week given the pressure on selling prices and supply costs we hear about in the space (see Credit Snapshot: PulteGroup (PHM) 5-7-25).

On the other end of the spectrum in selling prices, D.R. Horton remains one of the best bellwethers to look at for multiple reasons even beyond its national scale as the largest builder and highest market cap (by far). DHI posts prices that are more in line with “normal people.” DHI is also in the build-to-rent business and is a majority-owner of a land/lot developer, Forestar, which has done well. The struggles of Lennar and NVR in performance over the past year are worth digging into against peers when all the reports are in.

Deals will continue…

The Taylor Morrison deal was a major headline as a top builder will get taken out of the public domain. We liked the company and the consolidation theme continues with more deals likely to unfold (see Credit Snapshot: Taylor Morrison Home Corp (TMHC) 4-2-25, Credit Crib Note: Taylor Morrison Home Corp (TMHC) 5-20-24). The TMHC operating strategy had been a success story with BRK retaining the management team.

We have seen major Japanese suppliers/builders making deals to integrate downstream into the US (Tri Pointe by Sumitomo. M.D.C. by Sekisui) and over the years plenty of intra-US builder acquisitions to broaden product tiers and geographic mix. Taylor Morrison made some transformational deals itself (e.g. William Lyon) on the way to Berkshire buying them.

“Taylor Morrison Home Corporation (NYSE: TMHC) and Berkshire Hathaway Inc. (NYSE: BRK.A; BRK.B) jointly announced today that they have reached a definitive agreement for Berkshire Hathaway to acquire Taylor Morrison for $72.50 per common share in cash, representing a total equity value for Taylor Morrison of approximately $6.8 billion and total enterprise value of approximately $8.5 billion. The acquisition price represents a 24% premium to Taylor Morrison’s latest closing price of $58.50 on May 29, 2026.”

The Beazer hostile takeover can be seen as another stage of the industry consolidation story that has played out across the past housing cycles. BZH is still working its way through the process:

“In connection with this work, on June 29, 2026, Beazer informed Dream Finders that it believed Dream Finders’ June 22, 2026, updated proposal to acquire the Company for $29.25 per share continued to significantly undervalue the Company and did not represent an appropriate basis for further discussion. In reaching this decision, Beazer’s Board was informed, in part, by the potential shareholder value represented by other proposals and Beazer’s current standalone strategy.”
“On June 30, 2026, Dream Finders raised the value of its proposal to $32.00 per share and relinquished its exclusivity requirement, but it refused to enter into a customary confidentiality and “standstill” agreement similar to those entered into by other parties. Instead, Dream Finders decided to make its latest proposal public in what can only be perceived as an attempt to pressure Beazer’s Board to engage with Dream Finders under unilateral terms that Beazer’s Board does not believe to be in the best interests of shareholders.”

There is a clear divergence in the builder equity performance, but the exceptional cash flow resiliency of the larger players mitigates credit risks.

Earnings Season Beckons: Comparative Auto Equity Returns

Glenn Reynolds, CFA — Mon, 20 Jul 2026 19:57:43 GMT

We detail the trailing shareholder timeline returns for the legacy Detroit 3 (asterisk on Stellantis) vs. the Japan 3.
Ford and GM post better numbers in comparative returns to the peer group over the past year with the US market somewhat of a ground zero for evaluating supplier chain and material cost risks in the new trade environment.
The pressure on consumers has not weighed very heavily on the new vehicle buyers in 2026, but the bias of forecasts is for moderate downside in light vehicle sales for the full year subject to what could go wrong if Iran and trade war risk go the wrong way.

The chart details the running timeline equity returns for the bellwether high volume OEMs in the legacy Detroit 3 (Stellantis has an asterisk on that label) framed against the Japan 3 (Toyota, Honda, Nissan). We present a range of timelines and line them up in descending order of total returns for the trailing 1-year period.

With GM reporting on July 21, Ford teed up for July 28, and Stellantis for July 30, the market will get a chance to hear how the Iran fallout, tariffs, and higher consumer financing costs are playing out. Visteon also reports (July 23), but the major Tier 1 and Tier 2 suppliers generally report in following weeks. The color on how the materials and tariff effects are playing out will be important input. White House trade reps can do their spin, but double entry accounting is alive and well. Someone pays the costs in whole or in part along the chain.

The peak spring selling season is under our belts, and the expectations with gasoline price spikes hitting household discretionary cash flow will see some cause-and-effect details even if it is simple logic such as higher demand for hybrids. The yield curve does not promise cheaper retail financing or lower monthly payments on higher price vehicles. The supplier-to-OEM chain is facing mounting costs from tariffs and more expensive tech components (DRAM, etc.) in competition with the AI ecosystem.

Last week, we looked at Ford to tee up the recent history in model volume performance and Ford Motor Credit metrics (see Company Profile: Ford Motor and Ford Motor Credit 7-17-26). We had earlier done a similar exercise for GM (see Credit Profile: General Motors and GM Financial 10-9-25). Both Ford and GM are in very good shape.

Ford and GM have demonstrated operational resilience and strategic dexterity to adjust to a radical shift in trade and propulsion strategies created by the Washington whipsaw. The shift from the “War on ICE” (the other ICE) to the “War on EVs” was very costly and the political risk factors and erratic trade policy still lurk on the chalkboard (USMCA “review” and possible trade war or termination).

Long term strategy and intermediate tooling commitments and supplier contracts are hard to manage when the left vs. right whims tend to dominate the policy planning rhetoric. After all, these auto manufacturers make cars for Democrats and Republicans as well as for extremists on both sides of the political spectrum. They also employ a lot of both.

Market Commentary: Asset Returns 7-19-26

Glenn Reynolds, CFA — Mon, 20 Jul 2026 03:43:53 GMT

The week saw an anxiety contest between those more worried about a tech correction vs. those concerned about Iran escalation and the potential for cascading macro fallout. The IBM headlines and selloff of -26% rattled the markets (who is next in earnings season?), and the Semiconductor ETF (SOXX) posted a -10.2% week.
The risks of oil prices heading higher were largely shaken off by the UST curve with WTI over $82 to end the week vs. $71+ the prior Friday. As of later Sunday night, we see $84+ WTI. The UST curve moved lower on the week, but the broad benchmarks were all negative with NASDAQ, the S&P 500, Russell 2000, and Midcaps all in the red.
Banks reported exceptional earnings with the underlying business color offering reassurance on asset quality and the state of the consumer.
This coming week brings minimal macro releases but a major wave of earnings including Alphabet, GM, Tesla, and some key bellwethers in homebuilders (D.R. Horton, Pulte) along with some important consumer finance bellwethers (Synchrony, Ally, Amex).
A more distant worry on the list that is well behind a tech correction, Iran, and lurking pressure on inflation was Hegseth’s concerns around testosterone counts in the military (character and courage we assume is important). We could not help but wonder what Hegseth would have said to 5 foot-5 inch, 112-pound Audie Murphy.

The above table updates the running timeline returns for the debt and equity benchmarks we monitor. We see duration pressure on bonds from the recent curve setbacks with 1-month returns for the AGG index and IG Corporates in the red and the UST benchmark at 0%. The UST benchmark is negative for 3 months and YTD. IG Corporate benchmark with its longer duration is also negative for 3 months.

Equities are seeing growth stocks and tech getting dialed back for the trailing 1-month period with NASDAQ and Russell 3000 Growth negative for 1 month. 3 months returns are still solid, but as we cover in more detail charts below, the semiconductor sell-off and intermittent selloffs and rallies in software and SaaS based service operators is being felt. We address those topics in the relevant “tech check” sections below.

As we go to print, the Iran escalation sent WTI back briefly above $85 Sunday night then back to $84. The flowthrough of oil risks and Iran scenario spinning will make for interesting Q&A in the earnings season as AI capex goals get updated and notably for the hyperscale players and those most exposed to the AI ecosystem.

The above chart updates the UST deltas for the week with a very mild decline across the curve despite the upward oil pressure still threatening inflation (see CPI June 2026: Eye of the Storm? 7-14-26, Producer Price Index June: Still Hurts…Just Less 7-15-26).

The above chart updates the post-Iran UST deltas (bombing began Feb 28) as the ugly bear flattener unfolded from 2Y to 10Y/30Y. The inflation that ensued hit 4% handles for CPI and PCE in May while CPI dipped to 3.5% at the headline level in June. These inflation moving parts are tenuous.

The decline in YoY CPI to 3.5% headline and 2.6% core in June was driven by the -5.7% MoM in Energy for June that still left Energy YoY at +15.7% and Gasoline at 26.7%. That is still ugly in the context of very strong equity valuations. As we see on the screen this past week, those energy inflation metrics have a high risk of reversing with the Iran escalation.

The above table updates the YTD numbers for the UST deltas. The bond ETF returns see 5 of the 7 bond ETFs in the bottom quartile for the week as we cover further below in the charts. For YTD, we see 2 of the 7 bond ETFs have negative returns on the duration impact.

The tech bellwether table updates various timeline returns for some notable tech ETFs, and the “Mag 7+3” (includes Broadcom, Oracle and Taiwan Semi). We look at more single names and tech sector ETFs in our “tech check” charts below.

We see 3 of the Mag 7 leading the week in positive range with Apple, Microsoft and Amazon followed by the Software ETF (IGV). After that, the weekly returns flip to negative with the Semiconductor ETF (SOXX) sitting on the bottom with -10.2% for the week and -13% for 1 month but an impressive +25.6% for 3 months and still over +73.5% YTD. That double-digit sell-off was a very small dent in context with the trailing 1 year at +112.6%. We look at more of the underlying single names in the tech check timeline return charts below.

The update of the weekly returns in our broader group of 32 benchmarks and bellwethers shows a 16-16 positive-negative score. We look separately at the broader mix of tech names in our “tech check” update with that group of 32 much more heavily weighted to the downside and negative returns with a 9-23 score.

We see the large cap benchmarks (S&P 500, NASDAQ) in the bottom quartile based on tech weightings. The 11 S&P 500 sectors weighed in with a score of 6 negative and 5 positive as tech took a beating. The Russell 2000 and Midcaps were also both negative but less so and up in the 3rd quartile.
The reactions to Iran escalation have been mild in the securities markets this week despite WTI closing at $82.49 Friday, up from $71.41 the prior Friday. The UST curve might face the need to reassess this week.

The market will have much to digest this week as a slew of earnings come out with Alphabet and Tesla plus a wide range of industry groups including autos, freight and logistics, defense and aerospace, airlines, consumer finance (notably in credit cards), and major homebuilders.

We saw some benefits this past week for interest-rate-sensitive sectors tied to the downward shift of the UST. That helped push 5 of 7 bond ETFs into positive range on duration tailwinds. That also included the dividend-heavy ETFs such as BDCs (BIZD), Consumer Staples (XLP), and Real Estate (XLRE). We look at the UST deltas in more detail in the full asset return commentary to be posted later.

The top quartile is led by E&P (XOP), Energy (XLE), and Midstream (AMLP) in the top 3 slots with Financials (XLF) and Regional Banks (KRE) showing optimism after soaring earnings of major banks gave reassuring color on asset quality and the health of the consumer. Synchrony and Ally will give some more granular details on consumer credit this week. Amex will offer some signals on spending. The BDCs (BIZD) made the top quartile given the absence of negative loan color (so far) although those issuer-specific BDC earning releases come closer to the end of the season.

In the bottom quartile, we see Tech ETF (XLK) on the bottom with the Equal Weight NASDAQ 100 ETF (QQEW) in 2nd to last. Tech performance undermined NASDAQ and the S&P 500 given relative tech weightings as they ended up in the bottom quartile. Communications Services ETF (XLC) was in the bottom quartile as both Netflix (NFLX) and Meta (META) were hit hard and to a lesser extent Alphabet (GOOGL) struggled.

The chart updates our tech check mix of 32 single names, tech-based ETFs, and broad market benchmarks. The overall positive-negative score for the week was 9-23 with the 9 asset lines including 3 of the Mag 7 names (AAPL, MSFT, AMZN) along with a mix of software and SaaS-based names that had previously been on the receiving end of the AI displacement panic. Those include Adobe (ADBE), Intuit (INTU), Salesforce (CRM), FactSet (FDS), Palantir (PLTR), and Microsoft (MSFT).

The 6 software and SaaS names in the top quartile are still all in negative range YTD, so this is quite a flip. The next stage of tech name reassessment will get tested as earnings season rolls out. The market will seek more color in reporting season for a sense of where the broader AI ecosystem stands in its expectations for capex from the big hyperscale names. The focus will be looking to gauge capex timing and drill down into any changes in the pace and timing of the data center expansion. A variable will be what the rapid escalation of the Iran War means for the UST curve and old school “valuation math.”

In what was a bloodbath week for semiconductor equities, we see 6 of 8 names in the bottom quartile. The semi operators were joined by Oracle (ORCL) and IBM, who was crushed with major earnings and guidance setbacks that sent IBM stock down by -26%. That IBM performance was headlined by Barron’s as the “biggest wipeout on record” for the company.

IBM was catching a ride on the AI excitement despite being more of a legacy hybrid business mix. As of last week, the YTD return on IBM was only -2.9% as it avoided the worst of the sell-off felt in software and SaaS. IBM has now dropped down into the YTD bottom quartile at -28.2% wedged between ADBE and PLTR.

The Semiconductor ETF (SOXX) posted -10.2% on the week with the Software ETF (IGV) slightly in positive range at +0.42% at the top of the 2nd quartile. The more balanced Tech ETF (XLK) posted -5.5% in the upper half of the 3rd quartile. NASDAQ made the 2nd quartile but was a few notches behind the Russell 2000, Midcaps (MDY) and the tech-heavy S&P 500. The Mag 7 mix was 3 positive in the top quartile, 2 negative in the 2nd quartile with Alphabet (GOOGL) and META, and 2 in the red in the 3rd quartile with NVDA and TSLA.

The AI ecosystem stocks that had ridden the wave to new highs will face a lot of grilling in the earnings Q&A sessions. The same is true for the Mag 7 capex kings with inquiry likely to be locked in on how the data center buildout pace is expected to scale up (or slow down) based on equipment logjams, waves of state and local political reactions, and consumer sector (i.e. voter) pushback with a critical midterm election dead ahead. The headlines around electricity shortfalls and inflation pressure there and threats to water supply have all been on the front burner. We will see how many sets of kid gloves come out in sell side Q&A.

The 1-month timeline for the broader mix of 32 benchmarks and ETFs shows a strong performance by energy and financials in the top quartile. We see E&P (XOP), Diversified Energy (XLE) and Midstream in the top 5 along with Healthcare (XLV) and Regional Banks (KRE) rounding out the top 5. Interestingly, the BDC ETF (BIZD) has been making a slow comeback and was in the top quartile with Financials (XLF) and Real Estate (XLRE).

The low quartile shows the Tech ETF (XLK) on the bottom with tech-heavy NASDAQ and the Equal Weight NASDAQ 100 (QQEW). The UST curve moves hit duration with the long duration UST 20+Y ETF (TLT) with the IG Corp ETF (LQD) also in the red in the bottom quartile. Base Metals (DBB) saw some weakness as the shortages from the Strait of Hormuz started to look like it would ease. The Iran escalation could quickly bring back some of those supply problems and send prices of more commodities than oil higher again such as aluminum or copper. The risk of an oil spike and commodities replay will be getting debated this week.

The tech check mix over 1 month has been painful as evident in the bottom quartile numbers with 7 of 8 posting double digit negative returns with 6 of the names in the bottom quartile tied to semiconductors. Intel was the worst of the semi performers at -21.5% in 2^nd to last and only Oracle (included in the IGV software ETF) worse at -31.1%. We already addressed IBM in the weekly comment as the other name outside the semis.

The top performers in the high quartile include 5 software/SaaS names in the top quartile along with 3 of the Mag 7 – Apple, Meta, and Amazon. The 5 software and SaaS names have seen a rotation into that subsector after it was radically repricing lower during the “AI panic” that was driving such names dramatically lower. The 5 names in the top tier for the month included Adobe (ADBE), FactSet (FDS), Intuit (INTU), Salesforce (CRM), and ServiceNow (NOW). Those 5 names are all posting double digit negative returns YTD as we break out in another chart herein.

The 3-month return timeline for the broader mix of 32 benchmarks and ETFs posted a 21-11 score. The top quartile includes the Tech ETF (XLK) at #1 followed by the Equal Weight NASDAQ 100 ETF (QQEW). We see Regional Banks (KRE), Financials (XLF), Health Care (heavy on pharma), E&P (XOP), and the Russell 2000 in what is a reassuring and diversified mix.

The bottom quartile includes Communications Services (XLC) with Netflix getting slaughtered and negative returns for Meta, Comcast, and Disney among others. For bond ETFs, we see 4 of 7 in the red on duration with EM sovereigns (EMB), short UST 1-3Y (SHY) and HY bonds (HYG) each slightly positive well under 1%. Consumer Discretionary (XLY) was held back by weak retail performance.

The YTD returns for the broader group of 32 are showing a solid stretch on rising earnings for numerous industry groups. Bond ETFs have struggled. The bottom quartile saw 5 of the 8 ETFs tied to bonds with 7 of the bottom 10 being bonds. The 3 names on the bottom included Communications Services (XLC), the BDCs (BIZD), and Consumer Discretionary (XLY).

The winners in the top quartile show a cyclically diverse range of industries across energy related with E&P (XOP), the diversified Energy ETF (XLE), and Midstream (AMLP) along with the Tech ETF (XLK) again along with Transports (XTN), the Russell 2000, Regional Banks (KRE) and Industrials (XLI). That is a broad mix.

The returns for the YTD tech check mix post a score of 19-13 with the bottom tier once again dominated by Software and SaaS-based services names. While some of those negative returns for the software/SaaS group have been reduced, the same is true for the gains in the semiconductor lead winners.

The extraordinary returns for the AI ecosystem names in the top tier run from Dell at +214.8% down to Applied Materials (AMAT) at #5 with a +106% return. Making the top quartile took a +31% return as posted by Taiwan Semi (TSM). The Hi-Lo range of 270 points is well down from where it was but still highlights the outsized spike in the semis narrowly and AI plays broadly.

The trailing 1-year returns are obviously impressive for any cycle and the score is holding at 31-1 with only the BDC ETF (BIZD) in the red at -15.3%. We see the Energy ETF (XLE) now on top at 37.2% vs. the Transports (XTN) at #2 with +35.8%. It took 23.5% to make the top quartile while the median for the asset lines is around 13.5% for the LTM period.

Industrial Production June 2026: Sideways Syndrome 7-18-26

Company Profile: Ford Motor and Ford Motor Credit 7-17-26

Producer Price Index June: Still Hurts…Just Less 7-15-26

Existing Home Sales June 2026: The Stall is On 7-11-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

The Fall of CBS 6-3-26

Housing Starts June 2026: 5 Units or More is Not a Crowd

Glenn Reynolds, CFA — Sun, 19 Jul 2026 16:21:49 GMT

· Housing has been feeling the mortgage pain flowing into monthly payments while supply issues in single family homes are still a headwind. Multifamily continues to carry the ball for the headline trends in total starts.

· The +19.0% increase in total starts MoM from May included -0.2% in single family and +76.3% for multifamily, which was at a high for the trailing year. The YoY total starts posted +3.5% with single family at -3.2% and multifamily at +19.3%.

· More markets are starting to see downward price pressure in new homes based on builder color, and we get new home sales data this coming week. Last month’s median price moved higher (see New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26).

The above chart offers a clear reminder of the wild single family residential construction cycles across the decades. With favorable demographics for housing demand, the current starts run rate of 895K (vs. 897K as revised in May) is still well below the long-term median of 1007K and below all the timeline medians posted above except for the “crisis to current” timeline starting in Jan 2009 at 831K, which is in a similar zone in the post-crisis period.

The current backdrop includes mortgage rate pressures undermining the affordability of monthly payments with the Mortgage News Daily 30Y survey closing Friday at 6.63% (down from 6.75% earlier in the week). Mortgage rates are not likely to get much better from here in the peak housing season and with the Iran War and Strait of Hormuz crisis more likely threatening UST bear steepening than bull flattening. That comes after seeing mortgage rates flirt very briefly with crossing below the 6.0% line in Feb 2026, just before the Iran War.

The above chart plots total permits and total starts and single family starts and permits on a Not Seasonally Adjusted (NSA) basis. NSA is viewed as closer to what is going on in the trenches without the SAAR model assumptions.

For June 2026, we see NSA total permits lower by -0.2% YoY. Single family permits were higher by +4.1% YoY. Total permits were +7.8% higher MoM with single family permits up by +5.7 MoM.

For total starts and single family starts on an NSA basis, we see total starts up by +4.0% YoY and +23.2% MoM. For single family NSA starts, the YoY deltas were lower by -3.8% while MoM was up by +3.1%.

The above plots the single family starts by region (NSA). On a MoM basis, the critical South region (totals 51.9% of total NSA starts and over 58% of single family starts) was up in single family by +3.4% MoM and up by +1.5% YoY. The West as the #2 single family market (22% of total) was up 16% MoM. The Midwest region MoM in single family was -11.0% with the small Northeast market at -1.8% MoM. The YoY NSA starts were mixed with the South higher and West both higher among the big two regions. The Midwest was higher and Northeast lower.

The above chart updates running multifamily starts. At +513K (SAAR), June 2026 increased by +76.3% MoM from May after May posted a massive decline from April. The 513K is only 3.8% above April and 6.6% above March. The decline in May was the anomaly.

The 513K is well above the long-term median of 339K and well above the highest timeline median from Jan 1960 to Dec 1972 of 487K. That 1960-1972 period was when the urbanization boom was ongoing. The 1960s was a period of explosive growth for multifamily with the back end of the baby boom, the postwar rise of urbanization, and the high racial migration from the South to the North all part of the multifamily tailwinds. Immigration also played an important role.

The above chart updates Multifamily permits (SAAR). The 445K in June 2026 multifamily permits declined by -4.9% MoM and was down by -6.3% YoY.

The bottom line on home starts as we move further into the peak selling season is that 2026 is shaping up as a mediocre year at best for homebuilders. This is consistent with the guidance we are getting from the major homebuilders.

Existing Home Sales June 2026: The Stall is On 7-11-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

The Fall of CBS 6-3-26

Industrial Production June 2026: Sideways Syndrome

Glenn Reynolds, CFA — Sat, 18 Jul 2026 23:29:22 GMT

Despite the temptation to extrapolate from AI and high related capex to a broader industrial boom and the “Golden Age” for manufacturing pitched by the White House, the numbers just are not there with capacity utilization in manufacturing below 2022, 2023 and 2024 levels.
On the other side of the partisan ledger, there is no sign of the vaunted “collapse” often cited as caused by Trump policy critics. Industrial production is steady even if manufacturing capacity utilization of 75.7% is well below the longer term median of 78.4% (post-1967). Capacity utilization is below shorter timeline medians of numerous prior cycles with 76% and 77% handles.
The theme is “steady as she goes” in another boring set of IP numbers in June. Total industrial production ticked higher MoM by +0.1% but up +1.1% from a weak set of June 2025 numbers. That said, the June 2026 capacity utilization of 75.7% is slightly ahead of June 2025 at 75.6%. That remains below the 1972-2025 average of 78.2%. We last saw 78% handles for a quarter in 2023 and a 77% handle in 2024 (back when Trump says the country was “dead”).

The above chart is somewhat of a regular replay of the history of the industrial production cycles across time from 1967 through today. We have covered much of this in the past, but we roll the historical recap forward for convenience. We get new readers and students all the time, so we use it as a mini history. For those used to this history, I added some new angles in this version but otherwise you can skip to the next chart.

Here’s a topical summary of the history sections:

A look at the top down utilization numbers…
A brief cyclical lookback on replay…
Bring on the tech boom and excess…
The credit crisis arrived in the summer of 2007 and peaked in late 2008…
COVID, ZIRP, and a license to print risk…
Time for the new age transition to AI plus some old school crises…

As an “old guy” who covered such industries as autos and steel credits back in the 1980s (and worked on a few audits of resources and energy companies), we have seen plenty of cyclical stress and secular shifts. I came of working age in the first stagflation wave and oil spikes of the 70s and early 1980s, and much of the “old and new” is evident these days. Cyclical change and secular trends always get mixed in, and the evolution (or collapse) of industries is not new. The manufacturing sector is wrestling with the tariff waves in a world with global supplier chains. Oil spikes are not new.

For June, the “business equipment” line of industrial production is doing quite well at +5.4% with “information processing” up by +8.2% in June YoY. Consumer durables are down YoY with the exception of the “home electronics” line (Table 1 of the release). Defense and space equipment is up by +6.5% but construction supplies only +1.5%. Within Industry groups, “computer and electronics” was +9.2% YoY. Overall, durables manufacturing in industrial production was +3.2% and nondurables was -1.1%.

A look at the top down utilization numbers…

The capacity utilization trends are covered in the charts below, but it is always good to keep in mind that there are two moving parts: capacity growth and the rate of utilization. Over/under expansion relative to demand can shape pricing power (e.g. semiconductors on a global scale).

The current 75.7% for total manufacturing utilization is well below the long-term median of 78.5% and below the post-COVID median of 76.2%. The industrial production and capacity utilization numbers are among many metrics that take the label of “greatest economy in history” off the table. Whether GDP growth or payroll trends, the current economy is a bottom quartile economy when the growth of the 1980s and 1990s are factored in (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

The wildcard for this current cycle is the scale of the fixed investment that is now ramping up around the AI ecosystem. The multiplier effects cut across the full array of products and services and extend across many major trade partners with Taiwan at the top of the list (see Taiwan: Stakes are High, US Awareness is Low 5-17-26, US-Taiwan Trade: Risks Behind the Curtain 2-1-26).

The consumer sector and PCE have been unimpressive, but fixed investment is now soaring (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26). If you like comparing numbers (not a Washington thing) as opposed to spewing partisan adjectives, Trump 1.0 did not even frame up all that well vs. Carter and Biden – let alone the 1980s and 1990s (Gut Checking Trump GDP Record 3-5-25, Trump’s “Greatest Economy in History”: Not Even Close 3-5-25). Trump 2.0 is off to a slow start on GDP growth and payroll additions pale in comparison relative to the earlier glory years of the 80s under Reagan and the 90s under Clinton. That clear conclusion requires more numbers and less adjectives than we hear today.

A brief cyclical lookback on replay…

The chart shows the material swings across expansion booms and busts. That includes the aftermath of some highly damaging oil spikes that brought on cyclical weakness and later saw capacity utilization plunge. There were a lot more structural changes underway in those cycles than just oil and gas price pressures.

The pace of industry restructuring was notably the case in the 1980-1982 double dip as well as the recession of late 1973 to early 1975 when the Arab Oil Embargo set off chain reactions that turned the post-1973 period into an ebb-and-flow of macro nightmares for inflation and the consumer. Currency trends and labor costs were going through major changes across many years.

The May 1975 low of 71.6% followed the first bout of severe stagflation that unfolded after the Arab Oil Embargo. The 1980-1982 double dip recession came after the 1979 inflation spike took off with the Iranian oil crisis. The themes from Middle East wars or OPEC clashes (Iran vs. Iraq in the 1980s, Iraq vs. Kuwait/US in 1990) are being revisited today. There is room for conflict to get much worse with a wide range of potential geopolitical outcomes.

Capacity utilization saw a 68.7% low in Dec 1982 as the economy was just coming off the recession trough. The first Gulf War came after the August 1990 invasion of Kuwait with capacity utilization hitting a low in March 1991 at 77.2%, which is above where capacity utilization stands now in 2026. That takes some of the edge off the “greatest economy in history” hype.

Bring on the tech boom and excess…

The age of tech and credit excess in the late 1990s brought some new swoons with 71.8% in Nov 2001 after the TMT meltdown and HY default wave rolled in. The Utilities and Power sectors and Telecom capex all took a beating in that time frame.

We recently saw a market commentary comparing and contrasting the tech bubble of the 1999-2002 swing with today’s valuations in the AI ecosystem. That writer had referred to the tech bubble of 1999 as NOT a case of balance sheet pressures as his theory was simply about valuation metrics. We are not sure which tech bubble he was referring to during 1999 but he missed 2 of the 3 letters in “TMT”. He was using internet stocks as his focus. The internet stock bubble was very different from the debt-fueled telecom (T) and media (M) credit cycle and market implosion.

The telecom-related, debt-funded capex and balance sheet stress of 2000-2002 was ugly with many cash flow bleeders heading to chapter 11 and distressed debt restructuring that also brought industry consolidation. The credit stress was much higher and the counterparty credit quality was much worse in 2000-2002 than what we see today. That does not change the fact that 2026-2027 will remain highly dependent on raising much more debt to “finish the job” that is being built into revenue growth and earnings models. That is anything but assured. If the debt markets balk, the stock valuations will see a lot of pain.

The credit crisis arrived in the summer of 2007 and peaked in late 2008…

The next crisis in the manufacturing sector plotted above came with the post-credit crisis low of 63.4% at the recession trough in June 2009. Mortgages and derivative excess caused a very real systemic panic and deep risk aversion from the Lehman Sept 2008 period and well into 2009. Banks and brokers collapsed and the whole Ghostbuster scenario (“cats and dogs living together”) started to play out. Fears of cascading counterparty collapses rose as did worries around mass credit contraction hitting a broad swath of businesses. That in turn led to bailouts by the UST and protracted action by the Fed (see Wild Transition Year: The Chaos of 2007 11-1-22).

That period in late 2008 and into 2009 was famous for the bankruptcy and bailout of GM and Chrysler and how that reverberated across supplier chains from materials to components. TARP and late 2008 had already hooked up the “bailout infusion.” The credit contraction threat was very real, and the recovery in payrolls was slow to unfold with the consumer hammered by housing sector pain (Autos: War Stories & Anecdotes 9-22-23).

COVID, ZIRP, and a license to print risk…

COVID edged out the June 2009 utilization bottom with a record low of 62.6 in April 2020 and a wild 2-month recession. That pandemic period saw ZIRP, supply-demand imbalances and later the Russian invasion of Ukraine and ensuing oil spike that set off inflation and a tightening cycle that still did not trigger a 2022 recession. The Fed should get some credit for navigating that timeline even if late to the party.

In the context of manufacturing, the ZIRP brought a wave of refinancing and extension of liabilities, low cost of capital encouraging investment and pent-up demand that rewarded rebounding inventories and capex. Consumer financing was cheap and captive finance companies had credit that the finance sector was ready and willing to offer.

Time for the new age transition to AI plus some old school crises…

As we detail below in the recession histories, the idea of what is low or high for capacity utilization in the context of corporate sector profitability is not as direct as one might think. Breakeven volumes, cost structures and pricing power are key drivers of profits.

The tariff excess as a core Trump policy only makes that unit cost analysis more complicated as we head into a new round of energy-related cost pressures in 2026. Material costs (notably petrochemicals, base metals), operating costs for companies, and consumer discretionary household cash flow headwinds make for a tricky set of moving parts shaped by erratic geopolitical decisions.

The AI upside as well as the fallout and related fears is a new variable in the mix that cuts across both the services and goods sectors. What AI will mean for productivity improvement vs. payroll contraction will be an ongoing test of theories. Even if AI proves true to the valuation promises and brings a “revolution” to the economy, many will also pay the price.

Revolution is a term often associated with a body count (even if jobs and not KIA). We have been getting a taste in the recent SaaS services panic. Those SaaS services markets consume a lot of goods and have a lot of employees. Total paychecks drive PCE, which is 68% of GDP.

The above table breaks out the high-level groupings with total industry and total manufacturing posting a mix of positive and negative variances in June 2026. We include a “delta column” on the right.

Mining and Utilities moved higher for the month, and the rational expectation is that utilities will see more capacity added and more demand. The data center and power supply issue is more pressing and getting more political by the day in an area where there has been working class bipartisan anger around the side effects of such projects on power costs and water threats among other issues. That controversy has spread to Canada where we are seeing more legislative and regulatory battles around the data center capacity plans.

It may be local on a center-by-center basis, but it will find its way into an assessment of data center adequacy at some point for growth, AI ecosystem valuations, revenue models, and cost structures. Any sense of faltering optimism around volumes (e.g. international restrictions on AI), pricing power, regulatory backlash, or political risks (elections have consequences, etc.) could roil valuations.

We see Durables and Nondurables as the main events to track, and durables showed some aggregate weakness this month, ticking slightly lower as a group. The durables sector is especially important with all of the supplier-to-OEM multiplier effects of tariffs and oil spikes. Some industries will lose and some will win.

The IEEPA SCOTUS setbacks and recent attempts by Trump to counterattack by “creatively” using existing tariff legislation is struggling in the courts. Trump goes to “Plan B” and “Plan C” in his attempts to cut Congress out of the tariff decisions. He is hanging his hat on Section 301 and has invoked “forced labor” rules as a loophole. He recently threatened France with triple digit wine tariffs even without IEEPA. He seems to forget the EU works as a bloc. He also threatened Canada over wildfire smoke even as the USMCA is up for review.

Looking back from 2025 into early 2026, we see Manufacturing in a relatively narrow range and the same for Durables. Tariffs have not moved the production needle much so far, but that does not tell the profitability story on the tariff cost impact. Most people (outside the White House) know that buyers/importers write the check for the tariff, so that implies a higher breakeven volume or some offsetting actions in other costs or pricing.

Those tariff impacts will only play out over time across working capital cycles. Pricing decisions are more likely to come at a lag given the White House pressures, so there is a lot more to play out in 2026 earnings seasons and in company color ahead of FY 2027 when midterm results will be in hand.

The inflation story has turned into a negative variable for the macro picture in 2026. The “good news, bad news” aspect of a resilient industrial sector is that higher input costs can lead to the exercise of pricing power that flows into inflation. That beats the stagflation alternative but will keep life challenging for the FOMC and “Team Warsh” (if he can assemble a supportive voting team).

The Iran effects eased up in June and now are heading back in a negative direction in July. “War is hell” but it is also very unpredictable for macro effects.

The above table breaks out the details for the top 5 Durables lines and the two largest Nondurables lines. We include the capacity utilization deltas in the column on the right. We see more negative moves across all the major durables industries with 4 of 5 lower. “Motor Vehicles and Parts” moved higher. The two major Nondurables lines were split with Chemicals down and Food, Beverage and Tobacco slightly higher.

The above table updates the capacity utilization history for expansions and recessions. As we routinely discuss, the ability of companies to generate solid profits at lower capacity utilization in today’s markets relative to past cycles is tied to both automation and the evolution of low-cost global supplier chains.

Low-cost supplier chains are getting severely undermined by tariffs and are now facing supply chain headwinds from the Iran War energy effects and the related supply-demand imbalances.

The “AI story” and what it all means for productivity and headcount will be a big part of the risk analysis ahead. The natural outcome will be less jobs in a service intensive economy such as the US. The irony is that the most immediate impact on jobs has been in tech, but that payroll retrenchment can easily spread.

The above chart details economic expansion and recession averages and lines them up by height as a frame of reference. We see the current level on the left at 75.7%. The fact that the current capacity utilization is below numerous recession averages posted on the right side of the chart also scoffs at the recurring “Golden Age” and “hottest country” rhetoric.

In the context of the tariff priorities and reshoring ambitions, the slack capacity implied by the chart in historical context underscores that the analysis is a lot more complicated than just “build more plants” and “keep tariffs high” to force reshoring. That is a story told on an industry-by-industry basis. It gets into themes around pricing power, cost structures and sourcing risks (tariffs, etc.). These days the topical questions revolve around “AI winners and losers” in productivity and the relative ability to adjust and engage in tariff cost mitigation strategies.

The multiplier effects are important, but the relocation of supplier chains and OEM assembly relocation and retooling is by definition very slow to unfold given intrinsic lag times, tooling equipment, and contracts in place. It is a slow and painful process battling against the reality of automation and downsizing in some industries.

Manufacturing jobs edged slightly higher in June 2026 on a MoM basis by +3K but remains lower YoY by -38K (see Employment Situation June 2026: Back to a Crawl 7-2-26, JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26). If we look back to the end of 2024 (Dec 2024), manufacturing jobs are lower in June 2026 by -160K. If we go back to Dec 2023 vs. June 2026, the decline in manufacturing jobs is -312K lower now with most of that in durables. That is not something to brag about. These numbers are all sitting in the BLS releases. Hassett or Bessent might want to take a peek as they toss around qualitative praise of themselves.

There is also the fact that the cost of relocation has risen with all the tariff effects for materials, components, and qualified labor. Autos are the main relocation stories, but that is generally going to be tied to existing infrastructure and not a strategy of all-new greenfield plants.

In the end, many companies can just wait for Trump to “move on” and revisit plans later. For autos, the attack on investment in EV related manufacturing has undermined some projects completed, in process, or in the concept stage. Fear of trade wars also can slow roll some reshoring and onshoring ideas.

The issues around the USMCA review and its fate effectively make planning much more difficult if not impossible to do with clear economic certainty on trade rules. Trump’s signaling that he may terminate the USMCA entirely regardless of any legal interpretations on whether his sole-actor decision is even legal. That adds more drama to a policymaking framework that does not lack controversy in the best of times.

Existing Home Sales June 2026: The Stall is On 7-11-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

The Fall of CBS 6-3-26

Company Profile: Ford Motor and Ford Motor Credit

Glenn Reynolds, CFA — Fri, 17 Jul 2026 21:39:27 GMT

With GM (7/21) and Ford (7/28) set to report earnings and offer updated guidance, we update the Ford and Ford Motor Credit chart collection and await the peak season news. Guidance from such consumer bellwethers will offer some visibility as to how the curve and Iran have influenced expectations on volumes and consumer preferences. The average new vehicle buyer is arguably above the “K” midsection with the average used car buyer below it.
Ford has been able to sustain stable credit quality across a wild period that included a pandemic, a very brief recession (2 months), an inflation spike, a rapid tightening cycle, then back into an easing cycle, and now a potential return to tightening. Ford also faced a whipsaw of regulatory aggression that first attacked traditional ICE propulsion under Biden before an equally aggressive attack on EVs under Trump. The Russia-Ukraine experience of 2022 seems forgotten as a major factor in the CPI spike (too busy blaming Biden for everything) and the latest Iran situation is at a crossroads that can mean a return to semi-normalcy or severe escalation (civilian infrastructure attacks, Houthis shuts down Red Sea, etc.).
Capex excess on EV expansion in the end generated waves of multibillion dollar write-offs as investments proved uneconomic with EV consumers much smaller in scale than expected, and the EV sector broadly undermined by policy actions. That made for tough headlines, but billions in impairments and related charges now fall into the “that was then, this is now” bucket.
Ford’s ability to adapt and adjust to most any cyclical backdrop and competitive conditions have been demonstrated with the ultimate (but largely forgotten) ability of Ford to be the sole member of the legacy Detroit 3 to avoid Chapter 11 back in 2009.
We vote more with the stock market’s assessment of Ford’s prospects than the muted and mixed credit rating agency view on Ford’s performance and risk profile. We see Ford financial metrics as stable and clearly investment grade caliber in contrast with the mixed “cusp” credit ratings. EBIT trends and free cash flow guidance are constructive even if targets could be slow to be met given the uncertain macro backdrop and Iran fallout.
Ford faces less daunting tariff threats than GM in terms of its geographic mix of production with Ford the #1 manufacturer of light vehicles in the US. In contrast, GM has a heavy exposure to Mexico that is slowly being addressed under the Trump tariff regime. Uncertainty around the pending USMCA review will generate discussions on supplier chain costs and domestic content aspects that come out of any final move by Team Trump on trade. GM shows a clear edge right now in its ICE product cycles with Ford closing the gap while Stellantis and some other major US operators (notably Nissan) have been struggling badly.

The above chart plots the total returns over the trailing 1 year for Ford, GM, and Stellantis (STLA) against the S&P 500. STLA is in its own zone of pain and is a story for another day. The running returns for STLA remain grim across a range of timelines. GM is in the best shape in its risk profile even with its outsized Mexico exposure. The company is very well set even in EVs but its core strengths were in ICE SUVs and trucks (see Credit Profile: General Motors and GM Financial 10-9-25). Ford spent the past year playing catchup with GM as it navigated the EV shock and radical shift in policy and how Ford and GM would both adjust to the higher tariffs that also fell hard on the import competition.

The headlines around Ford in 2025-2026 have been more about the scale of the setbacks from a failed EV push that was undermined by dramatic policy changes. That naturally generated “special items” and restructuring charges associated with the Electric Vehicle (“EV”) ambitions. Those EV related charges comprised the bulk of the $17.4 bn in FY 2025 and $15.5 bn 4Q25. EV cost pressures include some cost recovery for the suppliers that committed capex to tech and product lines.

Despite a difficult rear-view mirror wrapped around EV losses that will never be recouped, the post-1Q26 boost in guidance and projections for FY 2026 show sustained profitability in the two core, profitable segments (Blue and Pro) and cash flow that keeps Ford quite stable in credit quality even with higher capex. Free cash flow is a positive factor in the Ford story. There is cyclical room to maneuver.

Some big swings in OEM equities…

Ford’s equity performance was chasing a superior performance by GM, who has outperformed autos as well as the broader markets. On a YTD basis, Ford equity is now ahead of GM, but GM is well ahead for the trailing 1 year, 3 years, and 5 years. The good news is Ford and GM are outperforming the “Japan 3” (Toyota, Honda, Nissan) and Kia/Hyundai over 1Y and 3Y.

The headwinds from the EV whiplash across the Biden-to-Trump transition were brutal as one went from the “War on ICE” to the “War on EVs.” In addition, Trump tariffs slapped an incremental $2 bn in expenses on Ford above the $2 bn headwinds from the Novelis fire in Oct 2025 and related disruptions along the supplier chain.

Ford nonetheless has pushed through those setbacks and has been guiding to materially higher profits and higher margins in 2026 to go along with higher capex. The Adjusted EBIT range for 2025 was bumped up by $500 mn to a range of $8.5 bn to $10.5 bn. Adjusted free cash flow for FY 2026 of $5 bn to $6 bn stayed unchanged at 1Q26 from where it was during 4Q25 earnings.

The cyclical volume variable…

Industry volumes have held in well with a small industry decline in 1H26 car and light truck sales of -2.7%. Ford has lost some share in the process with 1H26 sales down by -9.6%. We cover the Ford sales deltas in charts further below. Ford SUVs were down -12.1% with trucks off by -9.0%. The F-150 was still the top selling model but with GM still the top seller of pickups when you combine the brands. For the overall industry, 1H25 was the best in 6 years, so the 1H26 comps are tough.

Volumes are not always the main story across quarters, and the goal is not maximizing share and volumes but instead prioritizing profits. Ford has faced some pressure on volumes such as the F-150 with constraints on aluminum supply. As the trade publications emphasize, the goal of maximum profitability can be achieved with less volume. It is about optimizing mix and option packages across the lineups. The quality of the Ford model and product segment mix is in a very good position at this point.

The above chart uses a timeline starting at the end of 2019. We see the S&P 500 winning on the tech boom but GM and Ford both turning in very solid performance over the period. Stellantis is once again in the tank.

The market volatility underscored some companies (including Ford) were viewed as the way to play the EV priorities being pushed by Team Biden and Congress (remember the days when legislation was used and the balance of powers were more than a distant memory?). That was also a period before tariffs started to nuke low-cost global supplier chains built over decades.

If we use a starting point on the legacy Detroit 3 “auto comps” from the pre-COVID period as in the chart above, we get a look at how Ford vs. GM framed up across an array of mini “cycles within cycles.” The 2020 to 2026 timeline included a pandemic, ZIRP, the Capitol being sacked, a de facto declaration of war on the internal combustion engine (ICE) by Biden, an inflation spike in 2022 to the highest since Carter/Reagan, a Fed tightening cycle from March 2022, then a brief easing cycle starting in late 2024, and then a declaration of war on electric vehicles by Trump in 2025-2026.

Along the way, the world faced two oil shocks with the late Feb 2022 invasion of Ukraine by Russia and the joint US-Israeli attacks in Iran in 2026. That last one is still unfolding in somewhat erratic fashion. The propulsion mix and relative risk and economics are still shifting with hybrids seeing rising demand.

The Mideast war was a memory lane moment, and I could not help but think back to Chrysler bonds at 50 cents on the dollar as Desert Storm approached in 1990 and Chrysler getting bailed out during the Carter years with the Iranian oil crisis (1979). Both brought recessions.

Tariffs, supplier chain, and structural change…

We now have the additional wildcard of tariffs and global supplier chain stress along with the potential termination of the NAFTA/USMCA agreement. The past quarter century was about the overhaul of the legacy Detroit global footprint, radical capacity downsizing both before and after the 2009 bankruptcies, and the explosive growth of the US transplants (Japan, Korea, Germany).

More recently, the multi-decade and multicycle evolution of low-cost global supplier chains is now being shredded by tariffs and protectionism. Mideast war with oil prices still facing a potentially wide trading range is an X factor in a period of high inflation in post-1990 context.

The main point is the post-restructured Ford and GM have clearly demonstrated an operational flexibility that allows them to react to setbacks that would have blown them up before 2009. The structural changes that unfolded in industry evolution since earlier cycles make for lower levels of business risk. GM and Ford are now essentially North American and US-centric auto OEMs after global ambitions were dialed back by reality that led to GM’s post-Chapter 11 and the Section 363 “new GM.”

The Chapter 11 history and acquisition of Chrysler by Fiat is another convoluted story on the way to the creation of Stellantis. The grim Stellantis performance in the equity markets is evident in the chart. The legacy Chrysler piece of that operation is a separate topic. STLA carries its own tragic history as the company struggles badly yet again.

The above table offers a top-down financial view of the timeline from the bull market ZIRP year of 2021 through FY 2025 and then the 1Q26 vs. 1Q25 period. The low financing costs were running alongside post-COVID pent-up demand that saw used vehicles cleared off the lots with used vehicle inflation spiking to north of 40% in early 2022 (see Automotive Inflation: More than Meets the Eye 10-17-22). Even away from a mass pandemic, that was a very unusual time in the auto sector.

As noted above, the transition from the “war on ICE” to the “war on EVs” has generated billions in costs even if the majority of the costs are noncash impairments. The $11.8 billion loss in 2025 includes $17.4 billion in special items with $15.9 billion tied directly to auto restructuring. That included $10.7 bn in Model e asset impairments and $3.2 bn associated with the disposition of the BOSK JV (battery venture with SK ON). Another $1.2 bn was tied to the cancellation of the 3-row SUV electrification. The EV vs. ICE policy whipsaw has been very costly.

No shortage of risk factors that are tough to quantify…

In today’s world, the biggest manufacturing cost threats are tariffs and materials cost pressure (notably petrochemicals, aluminum and copper). The latest wave of upward price pressure on semiconductors is a unit cost challenge as autos compete with AI and data center demand. Supply is tight, delivery schedules crowded, and chip prices soaring (DRAM) with the rapid advances in auto tech and software. The “labor arb” decisions to focus on Mexico suppliers could also see more pressure at the same time Canada is the low-cost aluminum producer of choice facing tariffs. The USMCA is a material risk factor as dictated by the White House. Congress does not play a role.

The consumer household cash flow pressures also weigh on fundamentals. Weak to negative real wages matter and influence the “new vs. used” decision. Household pain is tied to broad CPI increases and higher funding costs along with materially rising healthcare costs for services and health insurance - despite what the CPI lines say on the latter (see CPI June 2026: Eye of the Storm? 7-14-26).

The undermining of lean manufacturing…

There is no need to repeat the list of the wild times, but we would rate the protectionist tariffs and disruption of global supplier chains at the top of the challenge list from materials across the Tier 1, 2, and 3 component suppliers. The defining discipline of “lean manufacturing” sprung from many global OEMs trying to see what they could learn from the Toyota Production System (“TPS”) in the early 1990s since the #1 Japanese OEM was eating everyone’s lunch. An OEM-sponsored MIT study produced a very readable book “The Machine That Changed the World” that broke out “how it’s done.”

We can summarize the problem now as those systems and approaches – which can take decades to get right – are now getting slammed by Trump’s trade policies and erratic tariff strategies. If you read the auto trade publications, you get a sense of the disarray and panic in many pockets of the auto sector from suppliers to OEMs.

Management teams do not preach out loud about the common-sense damage from tariffs out of fear of retribution and the ongoing need to lobby to mitigate damage. The least resistance strategy is to “wait out” Trump and see if the “next guy” can admit that the buyer pays the tariffs – not the seller. Trump missed that fact early and often and will never reverse himself.

USMCA and EU trade tension…

The USMCA nonrenewal will be the biggest wildcard ahead in 2026 for the auto sector, and the good news for Ford is that they are the least exposed as the #1 producer in the US with much lower exposure to Mexico than GM. EU and Japanese transplants and import tariff impacts are another source of cost pressures that need to be eaten by OEMs or flowed through.

The tariff cost threats typically get quantified by GM and Ford on earnings calls, but the fallout along the supplier chain is a major worry as they seek cost recovery from their large customers.

Loan rates squeeze affordability…

The broader topic of inflation and higher rates hit the consumer in retail financing costs that do not show up in the auto CPI and average transaction payments CPI line. That is the same for home price inflation where monthly payment pressure rules.

The “average marketed price” for sales at dealership hit $51,794 at the end of June (per Automotive News). The average monthly payment on a new vehicle is now over $770. If we look at the median payment for all new auto loans from 2020 ($580), the nominal payment is now 34% higher. In many areas of the US, that new vehicle monthly payment is a rent check. The loan terms have been extending more frequently to 84 months with recent data for 1Q26 showing originated loans at over 1/3 of loans beyond 72 months in the interest of making monthly payments more affordable.

The 3 major business reporting segments were revamped back in 2023 with the main theme being the vehicle propulsion and/or the customer segment (notably retail vs. commercial and fleet). The commercial and fleet customers sales roll up under the Pro segment, so it is not solely the vehicle types. The emerging and growing Ford Energy business is in the Ford Pro segment given its commercial customer focus. Ford Energy is not in the Model e segment. The expectation on Energy is for favorable growth and higher multiples assigned to those assets. That will start to get more visibility in coming quarters.

The divergent profitability of the segments certainly made the segregation of the loss-generating EVs a good reporting discipline to isolate the Blue and Pro mix from those ugly numbers in EVs. The reporting allows investors to track and isolate how much progress Ford can make in narrowing the massive losses in the EV-related business after all the billions in special item charges and shifting strategy in electrification.

The Ford Blue segment includes the ICE and hybrid vehicles sold to retail customers and includes retail sales of F-150s even if the brief life of the F-150 Lightning sales rolled up in Model e.

For Ford Motor Credit (FMC), the earnings power and asset quality is reassuring that the unit will continue to be a major source of earnings power and a source of dividend cash flow for the parent company.

Guidance by segment…

Ford offers FY2026 segment EBIT guidance in its 1Q2610-Q:

Ford Pro EBIT of $6.5 bn to $7.5 bn.
Ford Blue EBIT of $4.5 bn to $5.0 bn.
Ford Model e EBIT with a loss of $4.0 bn to $4.5 bn.
Ford Credit EBT of around $2.5 bn.

This guidance is within a consolidated adjusted EBIT guidance of $8.5 bn to $10.5 bn. The EV and related business lines have been a major use of funds and capex, and the policy differences across two administrations inflamed the scale of the capex boom in the case of Biden and decimated the earnings potential of that capex under Trump. The old adage of “let the consumer decide” goes back decades to “big car vs. small car” and “gas guzzling SUVs vs. high mpg economy cars.” This latest policy whipsaw was likely the most costly in history. That responsibility is shared by excess under Biden matched up with excess under Trump.

The theory now is that the industry will go through a period of stability in such policies at least through 2028 and that some lessons have been learned on how a war on propulsion categories brings a great cost and a lot of political risk. The OEMs should at least have a period of calm and less of that battle as they get back to “what they can profitably sell” with hybrids seeing high demand but EVs still a part of longer-term planning. Ford is well positioned to prosper with that backdrop as is GM.

Model strategies are for other days, but the propulsion debates likely will take a back seat to more nuanced model plans that also take into account the tariff and supplier chain costs as well as consumer demand.

The above table breaks out the detail on Ford and Lincoln product segments across the timeline and also the mix shift by propulsion types. We also see the pattern of EV volumes since 2022. We picked 2022 to start the timeline since it was a tightening year that undermined affordability via financing costs. The financing costs do not get captured in vehicle CPI (new or used). The total sales volume rose each year into 2025 with 2026 now showing some declines for 1H26 vs. 1H25.

The 2022 period was a year when EVs were ramping up to a 2025 peak. The declines in EVs stand out in the 2Q26 and 1Q26 periods. As we cover elsewhere in the report, the massive EV capex and product line investment led to the charge-offs of 2025 after the EV policies were whipsawed by the policy reversals with the change of administrations.

We also see some fade in Ford’s hybrid totals, but the industry trade rags have made it clear that demand for hybrids has gained a lift from the Iran turmoil. The now-cancelled Ford Escape (2026 final year) has a high mix of hybrids so that was a major factor. Ford has placed a priority on more hybrid offerings across its product lines and a much more measured and tactical game plan for EVs.

Ford cited the phaseout of its legacy high volume Ford Escape and also cited a 69% decline in daily rental sales volumes.

A world where few vehicles are called “cars” has been a trend over the decades with Ford a dramatic case in point with the low volume Mustang. GM uses different labels. The SUV/CUV mix runs the gamut, but the trend overall has seen declines in volume. Total SUVs were down -15.5% in 2Q26 and by -12.1% in 1H26. The larger truck-like Bronco is higher while the smaller (more car like) Bronco Sport is down slightly.

The iconic Explorer posted a +13.8% 2Q26 YoY and +21.0% for 1H26. The large Expedition has struggled, down -27% in 2Q26 and by -9.8% in 1H26.

Ford’s truck franchise is led by the F-150 full size pickup, which is regularly flagged as the #1 selling pickup (in fairness to GM, the Chevy Sierra and GMC Silverado are the #1 pickup offerings in total but across 2 brands). There is the reality of the sales declines and market share erosion in 2026 for the F-150 with 2Q26 at -11.0% and 1H26 at -13.3%. Bronco set 1H26 and 2Q26 records.

The Ford Maverick compact pickup has been a success with its shared platform with the Bronco Sport and has bragging rights as the #1 best-selling hybrid pickup. Maverick posted modest volume declines in 1H26 at -5.0% and 2Q26 at -0.4%. As a unibody platform, it is more carlike (CUV like) than the midsize Ranger pickup. The Transit van has been a very solid and steady performer also as evident in the time series.

The cash flow history of Ford since COVID is reassuring when you consider what unfolded during that time. With capex teed up for an increase to $9.5 to $10.5 billion in 2026, Ford will not be defensive in pursuing its longer term targets including a low cost, profitable EV geared to the right scale to meet customer demand.

The table also offers a reminder of how Ford Motor Credit is a highly profitable stand-alone profit center that supports its independent dealer network. At the same time, FMC has been a major source of dividend cash flow to the parent company. The material increase in dividends in 2021 capture the reality of cash flow generation when volume trends lower and receivables get liquidated, in turn generating balance sheet downsizing to upstream to the parent. The 2020-2021 period saw $10.8 bn in total dividends to the parent including $7.5 bn in 2021.

The above table updates the balance sheet for Ford (ex-FMC) in the period from 2019 through 1Q26. We see the peak borrowings during COVID in 2020 over $24 bn ahead of the reduction in debt to under $20 bn in 2022 and under $20 bn at 1Q26. Long term debt is at the lowest since 2019. Cash and marketable securities at 1Q26 for Ford ex-FMC totaled just under $22 bn, so the balance sheet is strong and liquidity heavy and all set against a Ford equity market cap of over $56 bn.

The Ford Motor Credit asset base is detailed in the above table. The asset totals and mix highlight where the earning asset base had trended in size and mix. For FMC, revenue is dictated by the average earning asset base, interest income generated by those assets and how that frames up vs. the interest expense cost to fund the balance sheet. The level and shape of the yield curve help set the net interest margin. Swings in asset quality and prudent provisioning on the expense line determine where the income will be reinvested or upstreamed as dividends.

We see total finance receivables down from the FY 2024 peak with retail contracts barely lower and dealer financing receivables modestly lower. Allowance for credit losses ticked higher sequentially in 1Q26 from year end on higher provisioning as covered in a separate table herein.

The above table plots the debt layers of the FMC capital structure across the unsecured debt and asset backed layers. The balance sheet strategy includes a diversified funding base and a target financial leverage ratio of 9:1 to 10:1. The liquidity and quality of the asset base make such leverage metrics easily manageable. The ratio at 1Q26 was 9.5:1, which was flat YoY.

The captive finance units of Ford and GM are a core part of a highly integrated chain that includes the independent dealer network. That ability to adjust the balance sheet to the needs of the end market has been demonstrated across the cycles. FMC is a low risk credit exposure with the ratings tied to the parent auto operations. The exceptional financial flexibility of FMC is rooted in the liquidity of its receivables, the ability to fund in the ABS markets, and the quality of the asset base.

The Ford dealer network can fund their customer sales with other banks or with Ford Motor Credit (FMC). The riskier loans to fund weaker borrowers and higher risk used vehicles are often handled elsewhere with nonprime and subprime consumer lenders who focus on the riskier customer or older used cars.

There is plenty of disclosure on asset quality and counterparty risk that details the risks across the credit tiers and plenty of metrics to monitor.

The above table details the asset quality trends on a worldwide level. We see the charge-off numbers, the credit loss reserve cushion, and loss-to-receivables (“LTR”) trends. We see the LTR eroding while the reserve ratio has been steady since 2023 but below 2021 and 2020. The LTR will be one to watch if charge-offs tick higher, which we expect they will.

The loss reserve has risen as higher charge-offs generated a higher provisioning need with higher interest rates increasing the burden on consumers in the current market. The 1Q26 provision of $172 million is materially higher than the $140 million in 1Q25 just as FY 2025’s provision of $528 million is much higher than $417 million in FY 2024 and only $278 million in 2023.

The table above details the US retail credit metrics. We see the LTR metrics weakening at 0.72% and delinquencies higher from year end at 0.21%. The repossession rate is also rising to 1.40% along with the loss severity to 17.5%. FICO scores remain high and higher risk portfolio exposure minimal at 3%. A FICO of 748 is prime but the lowest since 2022.

The exposure to longer maturity retail loans of >84 months has been rising steadily through 2025 to 14% as we have seen across the industry but ticked down to 12% in 1Q26. That trend has allowed monthly payments to move lower to “get the vehicle sale printed” but also creates intermediate term risks of higher losses on repossession and increases exposure to negative equity risk as residual values decline.

The above table does a similar exercise to what we did with General Motors (see Credit Profile: General Motors and GM Financial10-9-25). We look at Pension and OPEB (health care) retirement obligations and the trend line across a very volatile period for the underlying FASB assumptions (notably discount rates) and how they flow into the financial risk profiles of Ford. The GAAP accounting vs. ERISA accounting is always a big caveat, but you work with the data they give you that comes out once a year with some occasional interim adjustments.

We have written a lot on the pension topic over the years in following the auto sector, and the short form version goes something like this:

Debt like vs. contract risk: Pension liabilities have statutory clout and funding requirements, so the pension line is more “debt like” while OPEB is more about “contract risk” than debt. One can argue the point on how these obligations are treated for accounting purposes, and the economic substance of FASB requirements is an old topic. For credit risk assessment, the more important lines to watch are funding requirements as detailed in the financials and footnotes and unfunded defined benefits as a proxy for debt-like exposure. OPEB is typically a “pay as you go” expense to watch.
Funding plans consider “minimum” vs. discretionary”: The funding activities of the Ford plan are routinely disclosed and vary materially from the periodic GAAP expense recognized. The above chart details the net funded or unfunded exposure across a very active period of assumption variation from 2019 and then across COVID, ZIRP and a tightening cycle. For pensions, Ford contributed $720 million in 2025 to funded plans and expected to make $550 mn in 2026. Global OPEB benefit payments were $331 mn in 2025 and $324 mn in 2024.
GAAP treatment vs. ERISA measurement: There is an important distinction between GAAP and ERISA accounting rules in funding requirements and statutory risk exposure. Legislative relief on discount rates had been routinely provided and updated after the credit crisis to mitigate the damage of materially lower discount rates that come with the UST curve impacts that would have stressed corporate sector liquidity.
Discount rates as a major driver of book liabilities: The underlying assumptions can really whip around the projected benefit obligation as we see in this very unusual stretch of yield curve migration from 2019, across the pandemic and ZIRP period, and then on into the tightening cycle as ZIRP ended in March 2022 with rapid tightening before the start of the easing cycle again in Sept 2024. The derisking strategy of Ford’s pension asset allocation includes a dominant share of fixed income to mitigate the effects of moves in interest rates. At 12-31-25, Ford’s US pension held almost $25 billion in fixed income (excludes equities and NAV assets) out of $30 bn in assets supporting the US plans.
Pension-adjusted balance sheets: The use of pension adjusted leverage metrics get some limited focus in the case of mature industries with massive defined benefit pension plans (automotive, legacy airlines, utilities, defense and aerospace). Pension-adjusted leverage or adjusted Enterprise Value metrics (Pension Adjusted EV/EBITDAP multiples or the seldom used pension and OPEB adjusted EV/EBITDAPO, etc.) get some lip service, but few hang their hats on such valuation. They can use it for comps with suppliers. Even then, you can get a debate on whether to use tax-adjusted unfunded liabilities (you need to pay your pension whether you are a taxpayer or not).
Statuary funding requirements vs. discretionary is the main event: Funding pensions is an expense and a use of cash even if the funding event for ERISA can differ materially from the GAAP pension expense. It is worth monitoring in the case of DB-pension-heavy issuers since the use of cash is an important variable in considering debt levels, share buybacks and dividend paying power. As the years go by, DB pension plans get closed or frozen, and the actuarial tables take their course (Grim Reaper, etc.), when the pension risks diminish. OPEB becomes more a recurring cost of business with many companies taking the approach of “when you hit 65, Medicare is your destination” (Get off my lawn!) That is especially the case with salaried employees vs. hourly, unionized workers.
“Closed” or “frozen” matters: With collective bargaining agreements, the terms of the pension and OPEB plans overlap with health care benefit terms for current employees. That makes it a sensitive subject for current retirees and current employees alike. Those UAW contract topics across history are not for this commentary. That battle between employers and union employees on legacy defined benefit plans (“DB” plans) vs. defined contribution (“DC” plans) have been playing out across the cycles. “Closed plans” do not take new members (“DC plans only” for new employees. UAW plans such as those at Ford are closed to new entrants with new hires in defined contribution.

Producer Price Index June: Still Hurts…Just Less.

Glenn Reynolds, CFA — Wed, 15 Jul 2026 22:23:04 GMT

It gets easier. In theory.

The June Headline PPI number at 5.5% (down from 6.5% in May) for total final demand is still running well ahead of history, but the energy chaos could creep back into the picture in the summer home stretch.
We break out some of the important line items from a release that certainly contains no shortage of granular line items over too many pages. Notable PPI lines below headline levels include +7.9% for “final demand goods” and 4.6% for “final demand services.” Total intermediate demand for processed goods posted 11.1% with final demand energy down sequentially at -6.4% for May to June still leaving the YoY Energy PPI at +23%.
There is no hiding from the hydrocarbon chain from gasoline and power to raw materials and basic freight and logistics costs and from goods to services. At some point, the negligible real wages and pressure on costs could flow into wage expectations and adjustments on the payroll side of the ledger (i.e. layoffs).
Meanwhile, the “Vegas line” over at FedWatch has essentially wiped out the odds of a cut in 2026. The chance of the FOMC acting on 1 cut by the Dec 2026 FOMC meeting (as we go to print) is 0% while the odds of 3 hikes stand at 3.9%. The leaderboard shows 1 hike posting the highest odds at 44.5% followed by “no change” at 29.8% and 2 hikes at 21.6%.

The above time series updates the running PPI line for “Total Final Demand.” The current total of 5.5% is down from 6.5% in May when it was triple the median since 2010. There is no hiding from the reality of Iran as energy costs have so many effects on prices and costs directly or indirectly via secondary and tertiary effects. That will include raw materials across the supplier chains and the pricing pressure at the end of those chains. That includes freight and logistics costs to inventory costs.

To what extent tariffs might flow into goods pricing and services will be influenced by trade partner reactions that must still play out at a lag. Trade partners will need to respond to the latest barrage of tariffs and likely attacks by Trump on US and Mexico. Trump’s threat to cancel the USMCA is among myriad possible decision points that tie more into geopolitical than rational economic decision making. There is a scenario where Trump is at war with Iran and also ends in trade battles with Canada, Mexico and even the EU.

The above table breaks out some of the important PPI metrics that we monitor plus a few smaller line items we like to watch (Construction, Private Capital Equipment). The PPI release provides an extensive and lengthy range of metrics across over 20 pages in the release tables.

Even with improvement, PPI is not pretty…

The YoY column (2^nd column) tells a story of deteriorating inflation trends in 2026. June included some relief when the Trump-Iran deal looked like it had a chance of working (even if badly). The June numbers are progress, but the trend since Iran got underway at the end of Feb 2026 underscores the distinctly negative direction of underlying cost pressures along the chain from PPI to PCE/CPI.

We now have a backdrop where the flow-through of the cost pressures will still lead to higher prices and/or costs at various lag times. In addition, we are now on the cusp of a USMCA tariff meltdown as well. Whether Canada or Mexico will push back is highly uncertain given the tendency of both former NAFTA partners to retreat. High PPI plus more tariffs means either higher prices or narrowing margins.

Market reactions muted…

Protecting margins from PPI pressures or tariffs can bring cost reduction strategies (layoffs, store/plant closings, capex cuts, etc.). That is where the stories need to be researched at the industry and company level based on the cumulative impacts of the energy and materials fallout from fresh rounds of tariffs ahead.

The equity and bond market reaction have been relatively muted in asset returns around these inflation threats as we cover in other commentaries (see Market Commentary: Asset Returns 7-12-26). Duration has been hit, but equities have looked past the Middle East turmoil. Credit spreads in the corporate and HY bond markets have been resilient. The UST even rallied on “PPI day” after last week’s adverse UST moves.

The curve deltas are all higher since Iran and remain higher across the curve YTD as we detail in the asset return recaps. Iran and Trump escalating will not help UST prospects. The 30Y UST hit 5.1% before coming down a bit on the day. That is not a vote of confidence even if the signals are saying “nonevent” in the June inflation numbers. 30Y mortgages had climbed to 6.75% in the Mortgage News Daily survey to start the week but are now back at 6.64%.

Existing Home Sales June 2026: The Stall is On 7-11-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

The Fall of CBS 6-3-26

CPI June 2026: Eye of the Storm?

Glenn Reynolds, CFA — Wed, 15 Jul 2026 02:07:57 GMT

What could possibly go wrong from here?

The decline in YoY CPI to 3.5% headline and 2.6% core hitched a ride on the -5.7% MoM in Energy for June that still left Energy YoY at +15.7% and Gasoline at 26.7%. On a positive Energy sector note, Electricity at -1.0% MoM flowed into Electricity YoY at +4.0%.
The special aggregate indexes (Table 3) offered some relief in June but with “All items less shelter” still at a stubborn 3.7%, “All items less food and shelter” at 3.8%, “Services” (63.3% of CPI) at 3.2%, and “Commodities” at 4.1% even after a -1.1% MoM.
Our favorite “useless” derived metric is health insurance CPI with its -7.4% deflation reading as many consumers face brutal premium headwinds that have driven some to skip health insurance entirely or shift into high-deductible plans. The methodology for health insurance is disconnected from the consumer “cash out the door” impact.
Close behind in the derby for least economically relevant CPI metrics for household cash flow reality is auto inflation (new vehicles +0.5% YoY, used vehicles at -1.8%) where affordability is also heavily about the monthly payment and financing costs, which are not part of the CPI equation.

The above time series for headline CPI vs. Core CPI highlights the divergence of the two in this market backdrop with oil prices swinging around wildly with the Iran War (bombing began Feb 28) and related supply disruptions. Trump and his negotiating swat team have been unable to structure and close a deal consistent with his shifting reasons for the war and morphing goals for the bombing. The clash of the fanatical and hateful with the irrational and delusional makes for highly uncertain negotiating dynamics.

The chart shows some of the highs and lows of the post-COVID timeline with the 2.4% CPI Sept 2024 headline level reminding us that treating the Powell legacy with a little more respect might be justified. He and the FOMC were late to move, but 2022 had very strong employment while rolling into 2023-2024 saw solid growth rates in personal consumption – well above current levels (see Unemployment, Recessions, and the Potter Stewart Rule 10-7-22, 4Q23 GDP: Final Cut, Moving Parts 3-28-24).

The US as a “dead country” (to quote Trump) in 2024 also delivered some healthy PCE growth numbers in GDP with inflation moving sharply lower. There is a reason that Bessent, Hassett and the MAGA bobbleheads do not post charts and objective tables and frame them up against Trump’s 2025-2026 (or 2017-2020).

Along the way, we see a lot of strange statements out of Washington on economic performance and gross misstatements that are free of factual support. The trash-talking is worse now than ever in the modern, postwar era, but we always say look for the arguments that do not bring facts and stats. Those are likely parties spinning fake tales. We thought we should update a few factual histories as they relate to GDP, the consumer, and jobs to help sort out some of the falsehoods in the midst of so much political noise:

Trump’s “Greatest Economy in History”: Not Even Close 3-5-25
Gut Checking Trump GDP Record 3-5-25
Payroll % Additions: Carter vs. Trump vs. Biden…just for fun 1-8-25
Annual GDP Growth: Jimmy Carter v. Trump v. Biden…just for fun 1-6-25
The Politics of Objective GDP Numbers: “Flex Facts” on Growth 10-30-24
Presidential GDP Dance Off: Reagan vs. Trump 7-27-24
Presidential GDP Dance Off: Clinton vs. Trump 7-27-24
Employment Across the Presidents 8-15-23

We reproduce these in an inflation piece since, in the end, the inflation risk factor is about how it flows into the economy to impact jobs and consumer spending, undermine capital investments, or drive setbacks in the credit cycle whether at the consumer level in banking and finance, or in debt defaults.

In 2023-2024, the consumer proved resilient. In 2025-2026, the capex cycles have been extremely strong with consumers borrowing to spend more with savings rates dropping. It takes a lot to drive an economic contraction and that has not been close so far. The shakiest part of the macro story in the US for now is the consumer as evident in the weak 1Q26 PCE growth rates.

The above chart plots the historical time series for fed funds vs. headline CPI. The latest headline of 3.5% for June sent CPI back below the 4% threshold after ending 2024 (Biden’s last full month) below the 3% line at 2.9%. The chart includes the long-term medians, which underscore that the current compression of CPI and fed funds is “not normal.”

We reiterate that you can tell the consumer that “core is all that matters” for inflation but just don’t do it while he is filling up his gas tank on the way to the grocery store. The food and energy cost pressures are daily and weekly real cash flow economic events for household budgets. Telling a consumer health insurance CPI is in deflation mode (-7.4%), and that view is likely to be met with a laugh or with pointed profanity when that consumer cancelled his ACA coverage on a 50% premium increase.

Oil prices also will clearly matter to FOMC voters who cut their academic teeth studying the disasters of the 1970s (notably late 1973, 1974, and early 1975) and the 1980-1982 stagflation double dip (Iranian oil crisis in 1979). The common features of Mideast conflict and embargos and supply disruption cannot be ignored.

The most dramatic difference now vs. the stagflation years is that the US is now a record oil producer exporting record volumes at high prices. If oil exports were banned, prices would plunge in the US. That said, Trump knows where his meal ticket is (“big oil”), and the reverberating effects of such an action would be potentially catastrophic for trading partners.

Core CPI (or Core PCE) may be more significant to the debate around inflation (as defined by economists and monetary junkies), but the purchasing power and the relative affordability of the household basket is about real wages and what in that basket may have to change. The recent negative real wage growth or now the negligible real wage growth dovetails with the household cash flow topic.

The above chart frames the fed funds vs. CPI differential. Fed funds minus CPI is now +0.1% after it had turned negative in May at -0.6. vs. the long-term median of +0.6%. In the world of very basic theory, that relationship is more like accommodation.

FOMC odds are dim from here. As we go to print, the Vegas odds (CME FedWatch) show the odds of 1 fed cut by the Dec 2026 FOMC meeting stand at 0% vs. the odds of 1 hike at 42.9%. The odds of “No changes” in fed funds is down to 20.9% while the odds of 2 hikes by Dec 2026 is 28.5%. The probability of 3 hikes is 7.1%.

As we covered in the bullets, the customized CPI benchmarks posted in Table 3 of the BLS release are troubling in historical context even though there was improvement in June 2026. These detailed above are our favorites, but there is a long list worth reviewing.

“All items less shelter” has been our top pick across time as we have cited in prior research since “Shelter CPI” comes with too many asterisks and derived numbers that do not fit the typical household reality (or even close).

The chart shows “Services” still stubborn. It also drives home the stark differential between the Durables CPI trend and the much larger Nondurables line. The ability (or desire) to pass through tariff costs has not hit Durables CPI yet.

The 3.7% for the “All items less shelter” metric in June is better than the 4.7% of May, but it still is a material contrast with the sub-2% levels of 2024 including 1.9% in Dec 2024 (Biden’s last month). In mid-2023, the level was +0.7%. The FOMC was doing its job the right way by then, and the payroll adds of those 2023 days crushed what was posted for June 2026 (see Employment Situation June 2026: Back to a Crawl 7-2-26).

One line that caught our attention in the special aggregates was “Utilities and public transportation” CPI at 4.9% (not shown above) with an 8.1% index weighting. That line was 6.0% in May but it is still running warm. Total transportation CPI in Table 3 was 6.5%.

The above table details our Big 5 subsectors for CPI. These roll up to around 75% of the CPI index, so overall this mix of 5 broad categories is the main event even if there are plenty of line items outside this group that matter a lot to consumers.

We will not give much space to our long-held view on the low value of the lines that are derived and inconsistent with the household “checkbook experience” and household cash flow (notably shelter and the steep deflationary number of -7.4% for health insurance).

Some of those lines speak for themselves at a time when such items as ACA premiums have soared and the deductible offerings are shifting the mix in the wrong direction. Too many people have had to drop coverage or see deductibles spike to find “affordable” health care.

The total energy bucket MoM and the YoY metrics are down sharply from 23.5% to 15.7%. Within energy, the gasoline CPI of +26.7% is ugly but beats the 40.5% gasoline CPI of May. With the Strait of Hormuz “shut” again and the dubious “ceasefire” over, the war enters a stage of uncertainty on how long and how damaging.

The higher costs of housing are uglier when including financing and the monthly payment pain even if the CPI metrics do not capture that effect. Mortgages and the cost of financing do not get factored into the product line CPI. The UST curve and mortgages and auto financing are clearly going in the wrong direction in 2025-2026 and are likely to get worse.

With many households crushed by health care premiums (notably the ACA), the consumer is certainly not “feeling the deflation” in health insurance seen in the table. Those that struggle with coverage then get held hostage to the rising costs of services as broken out. The 5.5% for “hospital and related services” is high by any measure with 6.1% for the outpatient subset. In other words, if you lose coverage, that is waiting for you with prices high in absolute terms. Trump’s lack of effort in health care is one of the worst consumer headwinds and notably in the lower part of “the K.”

The above table updates some of the lines near and dear to households. Airline fares at +26.5% in June barely moved from the +26.7% in May and are heavily tied to jet fuel costs. These lines are a mixed picture with divergences across lines within these buckets.

The Apparel CPI eased to 3.9% after 4.8% in May. Trump looked to inflict pain on the low-cost Asian countries, and I am surprised it is not higher. Trump lost on IEEPA and that had heavily targeted Asia. Trump is now using the Section 301 “forced labor” strategy to raise tariffs on essentially all trade partners. Total apparel at 3.9% is down sequentially with the total Footwear line at 4.1%.

As we go to print, WTI is a fraction under $80 and Brent is near $86. WTI had a $68 handle in the first week of July. That was a short reprieve.

Existing Home Sales June 2026: The Stall is On 7-11-26

Market Commentary: Asset Returns 7-5-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

Retail Signal Read Part Deux 6-1-26

Market Commentary: Asset Returns 7-12-26

Glenn Reynolds, CFA — Sun, 12 Jul 2026 18:11:49 GMT

Did Little Marco set me up?

The week saw a meltdown of an already struggling Trump-Iran MOU process that had been a cluster of circles from the outset. Oil has remained remarkably contained given the reality that framing the supply side of the ledger is a bit of a moonbeam at this point as is how the market will price the forward risk factors.
The week will bring CPI and PPI data with more eyes looking ahead to how oil might play out with the highly uncertain response of Trump to the Iran challenge and how the later summer supply-demand balances get handicapped and what it all might mean for the UST curve. Higher oil would in theory mean stubborn inflation expectations and steepening risk.
As of Sunday morning, the FOMC odds of fed funds easing per FedWatch CME models are not likely to make Trump happy. The odds of 1 cut by the Dec 2026 FOMC meeting date are at 0% while the odds of 4 hikes are higher than that at +1.6%. The odds of no fed funds actions stand at 14.6% while 1 hike is 37.8%, 2 hikes 33.7%, and 3 hikes 12.3%. The next leg of the oil journey with a theorical Iran deal will not make curve odds an easy exercise even if hikes will remain the consensus.
Housing remains under a cloud on mortgage rates while financing costs for consumer purchases will see little relief. The 30Y mortgage rate stood at 6.64% as of late Friday per the Mortgage News Daily survey with the Freddie Mac benchmark set at 6.49%. Seeing such funding costs set against negative real wage growth is not a friendly macro backdrop for the home stretch in 2026. Add in health care premium stress in a “low hire” market and the GDP relief on the PCE line is still hard to see.

The above table updates the running timeline returns for the debt and equity benchmarks we monitor. We see the adverse duration effects of the UST curve action in the UST benchmarks and also the negative return impact on the long duration IG Corp index. The UST benchmark is negative for 3 months and YTD with only +2.69% for the trailing 1-year for UST. We break out the UST deltas in the next series of charts.

Equities posted very solid numbers for 1-month, and we see rolling 3-month returns that are better than many full years. The trailing 1-year has been well ahead of the long-term returns on the equity asset class but impressively so in the case of growth stocks and related benchmarks.

The Russell 2000 index has posted very strong returns for 3 months, YTD, and 1 year. The returns on the Russell 2000 benchmark are ahead of the large caps YTD and over the trailing 1 year despite some dazzling tech subsector returns. As we cover in the tech charts further below, tech has seen some massive winners in the semiconductor space and across the AI ecosystem broadly, but some major setbacks in software and SaaS services have undermined headline tech returns. The Mag 7 performance has generally been less than magnificent as we have covered in past commentaries.

The UST curve had another challenging week as noted above with the yield curve move higher undermining bond ETF returns. With the Iran MOU in disarray and the “ceasefire over” (the term “ceasefire” has had a very loose definition so far), there will be a fresh round of handicapping around how the Strait will play out. There will also be considerable uncertainty on when crude and refined product inventory rebuilding (especially China demand) could ramp up ahead the fall.

This week we get fresh CPI and PPI data. The UST curve will get a fresh test. While the headline and core numbers dominate the conversation, the product line items are something we always like to focus on. Some CPI lines show very little connection to reality and the household cash flow experience (e.g. health insurance “deflation” and “owners’ equivalent rent”). Electricity will remain under scrutiny with all the power and data center headlines. It is about a lot more than oil and gasoline costs with raw materials and freight and logistics costs (see Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26, CPI May 2026: The 4% Rubicon 6-10-26).

The above chart updates the post-Iran UST deltas and the ugly bear flattener that unfolded from 2Y to 10Y/30Y. The inflation that ensued and hit 4% handles makes a statement on incompetent governance in economics and geopolitics. We also see no shortage of disinformation out of Washington and the “talking econ heads” on energy and tariffs and what it all means in the unit cost and pricing transmission mechanism.

We cannot get factual and conceptual commentary on how this will all play out across the product and services lines when the President will not admit the buyer writes the check for the tariff cost. His policy and economist bobbleheads just fall into line denying simple facts and economic reality.

The above table updates the YTD numbers for the UST deltas. The bond ETF returns see 5 of the 7 bond ETFs in the bottom quartile as we cover further below in the charts. For YTD, we see 3 of the 7 bond ETFs have negative returns on the duration impact.

The above table updates the tech bellwethers and broad benchmarks. We add some more single names in the return tables further below, but the above table includes Mag 7 plus the volatile Oracle (ORCL) with Broadcom (AVGO) and Taiwan Semi (TSM).

The “Mag 7 +3” had a decent week with Meta turning in an unusual banner week in what has been a poor year vs. many bellwether tech names that we break out below in the ‘tech check” return timelines. The table shows META, AVGO, NVDA, TSLA, and AAPL ahead of the NASDAQ. MSFT continues to struggle with Alphabet (GOOGL) also in the red this past week. Taiwan Semi also lagged.

The following is a cut and paste of our LinkedIn post on Saturday with some edits:

The chart updates the weekly total returns for the broader group of 32 benchmarks and ETFs we monitor. As we see in the chart, it was a mixed week with a score of 15-17 for positive-negative. That includes 6 of 7 bond ETFs in the red (only HY was positive) with duration taking a hit on an adverse UST move.

Both the S&P 500 and NASDAQ large cap benchmarks were positive and in the top quartile. The Russell 2000 small caps and Midcaps (MDY) were in the bottom of the 3rd quartile in negative return range. The S&P 500 saw 6 of its 11 sectors in the red with the critical larger sectors posting positive returns (notably Tech, Financials, Consumer Discretionary, Communications).

We see Energy (XLE) at #1 along with E&P (XOP) at #3 in the top 3 as oil rebounded modestly on the Iran setbacks. The Tech ETF (XLK) rallied to #2 on the partial tech rebound that saw semiconductors rally along with some AI ecosystem names in a partial comeback from the recent selloff. Meta (META), Broadcom (AVGO), and NVIDIA (NVDA) had very strong weeks.

Meta was caught up in AI headlines for a big week at +14.8%. First the big rally came in news around META AI model releases and new cloud initiatives. Meta reported to be launching a cloud business to sell excess AI capacity. Then on the weekend Meta pulled an AI offering back that would allow all types of privacy violation high jinks by tapping into Instagram. We will see how the market sorts that out in what has generally been a poor performer YTD in returns.

As we cover in our separate Tech Check return commentary, there were still plenty of bottom dwellers this week in the software and SaaS side of the subsector mix. The Software ETF (IGV) posted a -1.24% with the Semiconductor ETF (SOXX) at +2.65%.

Cyclicals and rate-sensitive ETFs dropped into the bottom quartile with Homebuilders (XHB) dead last as the UST curve backed up ahead of this coming week’s CPI and PPI numbers. Existing home sales were weak again as median home prices hit an all-time high and inventories declined. That is not going to help the affordability story as monthly payment strain is still tied to the UST curve. Mortgage rates ended the week over 6.6% (Mortgage News Daily survey) and 6.49% for the weekly Freddie Mac 30Y.

In the bottom quartile, we see duration hit with the long duration UST 20+Y ETF (TLT) in the bottom 4 joined by the longer duration IG Corp ETF (LQD). Interest rate sensitive sectors such as the dividend-heavy Consumer Staples ETF (XLP) and Utilities ETF (XLU) were also in the bottom tier. The cyclical Materials ETF (XLB) and Industrials ETF (XLI) also lagged in the curve and Iran news. Earnings season picks up with a wave of banks this week.

The following is a cut and paste of our LinkedIn post on Saturday with some edits:

The chart updates the price returns for the “tech check” mix we monitor each week. The score for the week was 19-13 in a spotty performance for the bellwethers that are spread across the quartiles. That includes 3 of the Mag 7 in the top quartile. For the trailing 1-month period, only Meta and Apple are in the top quartile.

The volatile swings of June are entering July with a partial reprieve as both the Semiconductor ETF (SOXX) at +2.65% and the Tech ETF (XLK) at +2.87% were both positive while a modest negative for the Software ETF (IGV) at -1.24% saw more software and SaaS names leading the count in the bottom quartile.

The outliers on the week included Meta (META) at #1 in a rare banner week of +14.8% for a name that YTD sits in the middle of the 3rd quartile at +1.38% and well below the median return for the group YTD of just under +12%.
The other outlier on the rolling post-holiday week was Intel (INTC) at -8.73%. The good news for INTC holders is that the company still weighs in at #3 YTD at +197.7%. INTC is still positive for the rolling 1-month period at +2.62% after this week’s selloff.

The low quartile is still more heavily weighted in the software and SaaS-based services names that have been plagued by the AI displacement fears of recent weeks and months. Away from INTC as an outlier, the bottom quartile includes Palantir (PLTR), Salesforce (CRM), Microsoft (MSFT), the Software ETF (IGV), FactSet (FDS) and IBM as a mixed business line operator that has swung around in the weekly rankings.

For the Mag 7, we see MSFT and Alphabet (GOOGL) in the red in the bottom tier with the other 5 of the Mag 7 in positive range including Amazon (AMZN) at the top of the 3rd quartile, Apple (AAPL) in the 2nd quartile, and TSLA, NVDA, and META in the top quartile. Meta’s model announcements and cloud business headlines sent META to a rare big week.

As noted in our other comments, “Meta pulled an AI offering back that would have allowed all types of privacy violation high jinks by tapping into Instagram. We will see how the market sorts that out in what has generally been a poor performer YTD in returns.” META is still mired down in the low positive range YTD where it ranks #5 in YTD returns among the Mag 7.

The 1-month score of 24-8 featured a diverse mix in the top quartile lead by Industrials (XLI) with both Financials (XLF) and Regional Banks (KRE) in the mix along with the Russell 2000 small caps. We take that as a constructive commentary on the cycle and asset quality despite the inflation headwinds and less supportive FOMC prospects.

We see E&P (XOP) and Energy (XLE) in the bottom tier along with Base Metals (DBB) facing some setbacks in commodity pricing. That could change quickly if the Strait disruptions get worse and the supply turmoil is sustained in coming days.

The UST curve has been a setback of late as evident in the bottom tier with dividend heavy equities such as Consumer Staples (XLP) and Real Estate (XLRE) getting treated as bond surrogates and the long duration UST 20+Y ETF (TLT) in the red along with the IG Corp ETF (LQD).

For the 1-month tech check mix, we see a 24-8 score with software and SaaS-based services names taking a beating again in the red zone. ORCL continues to get periodically pummeled with a -30.1% rolling month. ORCL remains mired in the bottom quartile YTD at -27.8%.

The 2^nd to last return and those above were less troubling with Salesforce (CRM) at -4.45% in a crowded software mix. One outlier in the bottom tier was Qualcomm (QCOM) at a slight negative, but QCOM remains in the 3^rd tier YTD at +10.6% in a tight group with the S&P 500, META, and AMZN.

The rebound in the semiconductor and AI ecosystem names keep the divergent subsector performance trend in place. Advanced Micro (AMD) took #1 and remains in the top 5 YTD as discussed below. AMD was followed by Applied Materials (AMAT), and Dell (DELL) with Meta (META) posting a banner week that pushed it into the top tier for the month. The Meta rally was in part tied to AI model news as discussed in the earlier 1-week recap above.

We include a rolling 3-month recap for the broader mix of benchmarks and industries, and we see a score of 23-9. E&P (XOP) and Energy (XLE) join some of the more curve-sensitive ETFs in the bottom quartile including 3 bond ETFs (TLT, LQD, GOVT) along with the Utilities ETF (XLU). The Communications Services ETF (XLC) presented a very mixed performance by single names with Meta and Alphabet performing well but names such as Netflix, Comcast, T-Mobile, and Warner Brothers dragging it down.

The YTD returns for the 32 benchmarks and industry groups posted a 26-6 score. That very favorable mix reflects the breadth of the positive performance even if the headline benchmarks were heavily wagged by semiconductors and AI related valuation trends. A median return along the asset lines of 10.5% for the period through July 10 is a very impressive run rate.

The weakness in Consumer Discretionary ETF (XLY) is notable and is partly evident in the very weak Personal Consumption Expenditure growth in 1Q26 and the consumer sector soft indicators such as sentiment metrics. There is no hiding from the very grim PCE growth in services as well as goods at +0.5% (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26).

Consumption has been in better balance in the recent monthly Personal Income and Outlays releases, but the plunging savings rate and a broad mix of consumer borrowing metrics are flashing signs of trouble. The health care setbacks in ACA premiums and even loss of health care coverage or shift to higher deductible plans combined with negative real wage increases constitute bad news.

The YTD tech check returns post a score of 20-12 with the entire bottom quartile comprised of software and SaaS-based service operations. We also see the Software ETF (IGV) in the red in the third quartile along with Tesla, Communications Services ETF (XLC), and IBM.

The big winners are the usual suspects with the semiconductor and AI infrastructure beneficiaries. DELL at #1 was not likely to be on many “most likely” lists to start the year for a Top 5 slot in this lineup.

The Semiconductor ETF (SOXX) at #6 and +93.0% boasts a return differential of over 105 points relative to the Software ETF (IGV) at -12.5%. It took a YTD return of +42.8% (Taiwan Semi) to make the top quartile and +134% (Applied Materials) to make the top 5.

The trailing 1-year return has been holding at a score of 31-1 with only the BDC ETF (BIZD) in the red at -14.0%. We see the Tech ETF (XLK) on top by a material increment at +45.3% vs. the Russell 2000 at #2 with +33.2%. It took 22.6% to make the top quartile while the median for the asset lines was over 14%.

Market Commentary: Asset Returns 7-5-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

Retail Signal Read Part Deux 6-1-26

Existing Home Sales June 2026: The Stall is On

Glenn Reynolds, CFA — Sat, 11 Jul 2026 16:54:57 GMT

A major stall in existing home sales remains the order of the day with existing sales volumes at -2.4% MoM but +2.8% YoY. Existing home sales are mired in the low 4 million handle range at 4.09 million vs. 4.19 million in May 2026 and 3.98 million in June 2025 when numbers looked more like 2023 when mortgage rates were even higher. The median price hit a record high for total existing homes ($440,600) and single family ($446,400) as prices keep affordability strained even as inventory ticked lower.
Negative real wage growth is not helping the housing sector story line at the macro level. The cost of the household goods and services basket relative to consumer cash flow is a different challenge than the inflation debate (recurring price increases). The affordability headlines often prompt semantic exercises from economists and policy makers on inflation vs. one-time moves, but the purchasing power problem remains in place for consumers even if headline CPI and PCE price indexes get under control. For now, the current 4% handles for CPI and PCE are grim (see Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26, CPI May 2026: The 4% Rubicon 6-10-26).
The inflation anxiety will necessarily remain high and unpredictable with the setbacks in Iran and renewed problems for the Strait of Hormuz supply bottlenecks (oil, LNG, aluminum and various materials side effects including copper, etc.). We get CPI and PPI updates this week along with Housing Starts and Industrial Production, so the cyclical color will offer some fresh visibility at the same time the wave of bank earnings is streaming out and 2H26 guidance will be getting digested. The earnings expectations are bullish so the inflation handicapping will heat up with it.
As of Saturday morning, the FOMC odds remain grim according to FedWatch CME models. The odds of 1 cut by the Dec 2026 FOMC meeting date are 0% while the odds of 4 hikes are higher than that at +1.6% with the odds of unchanged at 14.6%. With respect to the hike odds, we see 1 hike at 37.8%, 2 hikes at 33.7%, 3 hikes at 12.3%. The 30Y mortgage rate stood at 6.64% as of late Friday per the Mortgage News Daily survey. The new Thursday Freddie Mac benchmark was set at 6.49%, up from 6.43% last week and down from 6.72% last year at this time.

The above chart details existing home sales SAAR run rates by month from January 2023 to June 2026 with 4.09 million in June 2026, down from 4.19 million in May 2026. As a frame of reference, in 2022 the market was posting 6 million and 5 million handle sales volumes in the first half of that year.

The recent existing home sales totals look more like the late 2023 period when mortgages had peaked (see Existing Home Sales Dec 2023: Rerun of Multi-Decade Low 1-19-24). The 30Y mortgage rate has moved within a 200 bps range since the Oct 2023 peak when Freddie Mac 30Y hit 7.8% and many mortgage offerings were near 8%.

The above chart shows the sales volume delta by price tier for June 2026, and we see 5 of the 6 price tiers posting positive growth with only the lowest price tier posting a decline. Note: We use “not seasonally adjusted data” for this chart.

For existing home sales, the monthly payment math is still unfavorable for those looking to cash out, move up, or simply relocate. Expectations for a bull flattener in the UST market that would translate into low to mid 5% mortgage rates have been crushed at this point for 2026 after major setbacks for that same scenario in 2025.

As noted in the bullet points at the top of the commentary, the market is pricing in 0% chance of Fed easing, and it is a very challenging leap of faith to see any probability of the conditions for easing getting better from here given steady payrolls and rising inflation. The Iran setbacks along with sustained inflation pressures do not offer much hope for a sharp move lower in the 10Y UST, which in turn dictates moves in 30Y mortgage rates.

An easing scenario would require a macro backdrop that hits payrolls and homebuyer confidence to make the FOMC take such action. That would require a radical event at this point. Such a move by the Fed could also drive a UST steepener subject to the underlying reasons used by the FOMC.

The oil spike and price swings since Iran plus the documented inflation pressures will make life a challenge for Warsh. The years of “repricing of the household basket” under Biden and again under Trump has made life a struggle for many and now we are looking at negative real wage growth.

We read a comment in Housingwire that highlighted slower home price growth vs. wages, but the funding costs (mortgages) and broader expense base that comes with home ownership and relocating undermines such a household budget assessment. The cash-in, cash-out analysis still says home ownership is mired in an affordability crisis in terms of the cost of ownership when considering financing and operating costs.

The above chart shows the geographic mix of volumes and details on price mix by region. The South is the main event in single family volumes whether new or existing at over 46% of total volumes.

For the bar chart, we break out the mix for each region by price tier. For example, the South shows almost 50% of its existing home sales volume in the $250K to $500K range and almost 17% of its sales in the $100K to $250K bucket.

The high cost of homes in the West (notably California) is clear enough just by glancing at the bar chart with over 17% at prices over $1 million. The second highest in the $1 million club is the Northeast at over 12%.

We see a major concentration across the regions in the $250K to $500K although the $100K to $250K bracket for the Midwest stands at almost 27%. The West shows a high share of 28% in the $500 to $750K bracket, which again underscores how expensive the West region price tags remain in national context.

The map explains what states are in each Census region. There is a very wide range of home price profiles in the West and Midwest states.

Inventory for total existing homes ticked lower MoM to 1.56 million units for -0.6% MoM and +1.3% higher YoY. Current inventory is well below longer term medians including 2.08 million for the post-1998 median. The median from Jan 2011 (homebuilding low) to current times is 1.75 million. In other words, existing home sales inventory remains low even if the level is materially higher than the stunning low of 850K of Feb 2022 ahead of the end of ZIRP and start of the tightening cycle in March 2022.

The existing home inventory balance had shown a steady rise off the sub-1 million lows of 2022. Inventory had risen to the 1.3 million handle range in 2024 before dipping back down to a recent low of 1.14 million to close out 2024. We bounced off those numbers in 2025 to get back above 1.5 million handles before the recent move lower to 1.2 and 1.3 million handles and then back to current levels above 1.5 million.

The above two-sided chart updates the trend line in total existing home sales vs. new single family homes. After some material disruptions in the data updates during the shutdown, the new home sales data is current again (see New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26). It’s clear that both are low in historical context. Notable exception is the post bubble housing crisis.

The above chart breaks out the timeline for June existing single family only of 3.73 million vs. total existing home sales of 4.09 million. The 4.09 million total is well below the long-term median (from Jan 1999) of 5.2 million. The total of 3.73 million for single family is well below the long-term median of 4.63 million.

Existing single family growth was -2.4% sequentially and +3.3% YoY (SAAR). The lower line is ex-condo/ex-coops. We saw 360K in condo and coop sales in June 2026, down from 370K YoY and down from 370K MoM.

The above chart updates the median price for existing single-family homes at $446.4K (vs. $440.6K for total existing). That is above the June 2025 level of $438.6K. The median price in June 2026 is at an all-time high and dramatically above the $308K level back in Jan 2021 and $277K in Dec 2019. Mortgage rates were in a different zip code in Jan 2021 were below 3%.

The above chart shows another angle on the sales mix across the price tiers. We just lift the numbers off the monthly handout for single family homes released by the NAR each month. Higher price homes and wealthier buyers have had a better time across this cycle. The “K recovery” certainly applies in housing given the mortgage pressure on monthly payments.

This pattern feeds the dynamic of builders targeting higher price homes vs. starter homes. Meanwhile, the funding costs of a home purchase (new or existing) are a deterrent to “move-up” sales by existing homeowners facing much higher refinancing costs if they are sitting on 3% and 4% handle mortgages. That remains a major headwind for existing home sales volumes.

The $250K to $750K range is comprised of two tiers that add up to almost 2/3 of the market with the $100K to $250K showing a big share in some of the Midwest states as detailed in an earlier chart.

We looked at the growth trends for each tier earlier. The lowest price tier saw volumes decline while the top 5 tiers rose. The lower price tiers are more on the cusp of where affordability and mortgage eligibility could be strained at 6.6% area handle mortgage rates (based on Friday’s close in the Mortgage News Daily survey).

The existing home sales trends make for overall unfavorable news for the housing sector in terms of volumes and prices.

See also:

Market Commentary: Asset Returns 7-5-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

Retail Signal Read Part Deux 6-1-26

Market Commentary: Asset Returns 7-5-26

Glenn Reynolds, CFA — Sun, 05 Jul 2026 23:38:41 GMT

I have in my hand a list of 20 million Communist illegal immigrants who voted for Joe Biden in 2020. I will disclose it in two weeks. Maybe.

The pain in semiconductors comes with some continued second-guessing around valuations for the AI ecosystem names. The stunning YTD numbers for numerous critical tech sectors will get fresh tests on data center uncertainty. The software and SaaS names are gross underperformers in 2026 but some are starting to creep back.
As data centers come under siege by environmental interests, state and local legislative challenges, and community activists, the market could see more concerns in funding appetites (debt or equity). We will see what comes out of guidance in the earnings season and any revised growth rates getting framed for the intermediate term.
The performance of semiconductor equities was shaken again this past week with inflation not helping a consumer story that faded in 1Q26. While resilient, consumers are still on the wrong end of negative real wage growth after the wave of June macro releases.
Earnings kick into gear with the big banks the week of the 13^th, and the pricing and volume questions for companies broadly could bring more signals by industry. Questions include how materials and power costs have flowed into cost structures with Canada and Mexico in the crosshairs on the tariff front. Mexico is a critical low-cost supplier for labor intensive inputs while Canada is a key resource provider even as it ranks as the #1 export market for around 3 dozen US states.
The UST curve steepened on the week given the balance of factors as the market seems to be looking past Iran to a happy ending and ignoring the weaker jobs numbers and downward revisions as influencing the FOMC soon or materially improving inflation expectations.
The CME FedWatch odds as of midday (Sunday) still see 0% chance of 1 cut by the Dec 2026 FOMC meeting set against 41.9% odds of 1 hike, 26.7% for 2 hikes, and 7.2% for 3 hikes. The odds of “no change” stand at 23.4%. Those odds will continues to gyrate on events (see Employment Situation June 2026: Back to a Crawl 7-2-26, JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26).

The above chart updates the running timeline returns for the debt and equity benchmarks we monitor. Debt returns are again all positive despite the adverse curve moves. Credit spreads for bond benchmarks have been steady in the midst of all the private credit headlines. Those headlines have weighed more on select financial market equities and subsectors (e.g. BDCs, private equity managers).

Equities are showing the pressure of the tech sell-off in the 1-month numbers, but 3-month results still show the tech leadership with some constructive performance numbers outside tech. We look at those in the ETF charts further below.

The 1-year time horizon shows a very special year for Russell 2000 small caps. Large caps have also been stellar YTD, but recent weeks have been flagging with some downside volatility.

The above chart updates the 1-week UST deltas as the curve steepened despite the recent adverse trends in inflation metrics. Payroll numbers were weak (but not that weak) with the JOLTS numbers reflecting more favorably on prospects than the pace at which they are being filled. Both the ADP and the BLS payroll reports show the main drivers are still in services with additions to goods or manufacturing still light.

The above chart updates the post-Iran UST deltas (bombing began on Feb 28) as a bear flattener unfolded from the 2Y. The 2Y shows the biggest move as a reflection of how the market is looking at FOMC policy on the front end.

The YTD UST deltas reflect the bear flattener effects that played out across Iran, oil, adverse inflation metrics, and how that has all flowed into inflation expectations. The muted stagflation fears have further eased with progress (but not a firm resolution) on Iran.

The tech bellwethers above show another week of big winners and losers but this time with the software names and 6 of the Mag 7 winning and semiconductors losing. We see Apple ranked #1 at +12.2% with Semiconductor ETF (SOXX) in dead last at -9.42%. In contrast, the Software ETF (IGV) hit positive double digit returns at +10.39%. We look at a broader mix of tech benchmarks and ETFs and single names in other charts further below.

We see the tech heavy NASDAQ and S&P 500 just below the median slot with 1% handles for each. The notable trend in the weekly numbers was “software wins and semis lose” with some exceptions such as the always volatile Oracle (ORCL) in 2^nd to last at -8.0%. The Equal Weight NASDAQ 100 (QQEW) was in the middle just above NASDAQ.

The 3-month and YTD timeline retells the interesting story of big winners and big losers across the tech subsectors as we present in more detail below, where we break out more software and SaaS single names. Microsoft at -17.1% and Oracle at -27.9% YTD make a broad statement just in those two narrow cases.

The following is a cut/paste from our weekend LinkedIn posts with minor edits.

The week was shortened by the July 4 holiday, but the major equity market benchmarks have been looking past the inflation headlines, the slower PCE growth from the consumers seen in 2026 and waiting for a final (a real “final”) settlement with Iran. The S&P 500 and NASDAQ were positive on the week with Russell 2000 and Midcaps (MDY) both negative.

The score for the 32 asset lines was 19-13. Winners include Health Care (XLV) at #1, BDCs (BIZD) at #2, Financials (XLF) at #3, Communications Services (XLC) at #4, and Consumer Discretionary (XLY) rounding out the top 5.

The “rotation” theme returned with semiconductors and SOXX ETF taking a beating while the Tech ETF (XLK) was 2nd to last above (see our separate “Tech Check” commentary). In contrast, software and SaaS names bounced back. The Equal Weight NASDAQ 100 ETF (QQEW) still made the top quartile.

The weak payroll numbers this week (in theory) could offer some reassurance to those focused on the curve, but rates drifted higher and the 2Y to 10Y steepened. Duration took a hit with the long duration UST 20+Y (TLT) 3rd from last. Homebuilders (XHB) were last in part on mortgage worries and weak residential hiring. Negative real wage growth seen in the BLS release raises the risk of wage pressure with household basket affordability in a bad place now.

Weak jobs will not help housing, and the UST setbacks saw 6.6% to end week in the Mortgage News Daily survey. The 6.43% for Freddie Mac’s weekly update (on Thursdays) was down modestly from the prior Thursday and down vs. 6.67% at this time last year.

The S&P 500 near highs are reassuring as long as we keep in mind that the S&P 500 hit 70 record high days in 2021 and 57 in 2024 before the 39 in 2025 and 24 in 2026 (Source: Seeking Alpha). New highs come and go, but the trick will be steady optimism around recession avoidance (for now, steady-as-she-goes on that topic) and stabilization of the consumer. At current PCE levels (+0.5% in 1Q26), that is a very low bar, and the spring PCE monthlies have been resilient.

The Iran wildcard to this point reflects optimism for a good result but predicting Iran’s and/or Trump’s behavior is a tricky variable to price. The direction of refined products has been questioned by the White House as if inventory costs do not matter, but more success on Iran should flow into energy costs at a lag even if not in the case of electricity.

We are entering June quarter earnings season with more guidance ahead and a greater sense of how some industries are dealing with inflation and the risks associated with the USMCA review process and potential EU trade tension. Trump again threatened 100% tariffs on the EU and is yet to admit that the buyer writes the check for the tariff. On tariffs, it is tough to discern the distinction between what he knows (or cannot retain or admit) vs. what he says. The choice is disinformation or ignorance.

The following is a cut/paste from our weekend LinkedIn posts with minor edits.

The chart shows a wild week in tech equities across single names, ETFs, and techcentric benchmarks. The semiconductor subsector and software and SaaS based names reversed relative trends in stark fashion. The Software ETF (IGV) posted +10.4% and the Semiconductor ETF (SOXX) was down by -9.4%.

The tech-heavy NASDAQ and S&P 500 were sitting in the middle of the pack of 32. NASDAQ and the S&P 500 posted 1% handle returns in a week that showed dispersion but nothing like the gaping Hi-Lo range often seen in recent months between semis and software. The Russell 2000 small caps and Midcaps (MDY) were slightly negative in the 3rd quartile.

The bottom quartile mix is clear enough with 6 of 8 directly tied into the semiconductor subsector. We also see legacy tech leader Cisco (CSCO) with its heavy exposure to the AI ecosystem and related capex boom. Oracle (ORCL) is housed in the software ETF (IGV), but also ties directly into the needs of AI buildouts and data centers. ORCL took a swoon with the benchmark AI plays.

The bottom quartile ran from -19.6% in last place with Micron (MU) up to the leader of the low quartile, which was Broadcom (AVGO) at -4.87%. In the overall mix of 32, we see a Hi-Lo range of over 40 points, and it took over 10% to make the top quartile on the week.

In the top quartile, we see many of the names which had been taking a beating YTD as recent weeks saw semiconductors soaring. Palantir (PLTR) weighed in at #1 with a +20.5% price return followed by FactSet (FDS), ServiceNow (NOW), Adobe (ADBE) and Apple (AAPL). Salesforce (CRM) also worked its way back into the top quartile with Microsoft (MSFT) and the more consistent IBM.

The MAG 7 had a very rough June as we covered in our weekly asset return commentaries along the way. This transition into July shows a partial comeback this past week with Apple (AAPL) and Microsoft (MSFT) back in the top quartile with only NVIDIA (NVDA) in the red in the 3rd quartile. Meta (META), Amazon (AMZN), Tesla (TSLA), and Alphabet (GOOGL) were clustered in the 2nd quartile.

The 1-month scoreboard weighs in at 21-11 for positive-negative returns with the tech, energy, and metals backtrack on display in the low quartile. We see the upstream energy exposure (XLE, XOP) underperform. Base Metals (DBB) sits on the bottom after a sharp decline from the peak. That seems to signal that markets are looking past Iran in oil and notably aluminum supply from the Strait of Hormuz along with pressure off copper supply expectations.

The main story is still tech selloffs with the Tech ETF (XLK), NASDAQ, and the Equal Weight NASDAQ 100 (QQEW) in the bottom tier. The tech-weighting of the S&P 500 left that broad market benchmark in the red sitting on the bottom of the 3^rd quartile.

The mix in the top quartile reflects well on how the market sees macro fundamentals stabilizing. While Health Care at #1 is consistent with the big pharma rallies, the Regional Banks ETF (KRE) at #2 and Financials ETF (XLF) at #3 is a vote of confidence with Homebuilders (XHB) and Industrials (XLI) rounding out the top 5.

The 1-month timeline for the Tech Check mix certainly tells a clear story with only Applied Materials (AMAT) and Intel (INTC) in positive range among the tech single names detailed. We see major declines in Oracle (ORCL) at -42.7%, Qualcomm (QCOM) at -26.8% and Broadcom (AVGO) at -25.1% in the bottom 3.

For the other 5 in the bottom quartile we see the software and SaaS-based names (CRM, NOW, ADBE, PLTR, INTU) that had been getting trounced since the onset of the AI panic around business models. Those 5 names are all posting negative returns YTD as we detail further below.

The 3-month timeline returns for the broader group of 32 benchmarks and ETFs shows a score of 28-5. All the tech names are in positive range with the winner of the pack being the Tech ETF (XLK) at #1. The top 5 also include the Equal Weight NASDAQ 100, NASDAQ, and the tech-heavy S&P 500. The Russell 2000 also made it into the top quartile.

Energy was beaten back for the rolling 3 months with E&P (XOP) and diversified Energy ETF (XLE) in the bottom two after the explosive rise on oil and LNG faded sharply around the Strait of Hormuz “almost-deal.” That would correct the supply shock risk premium if it stays on track.

That oil relief gave a boost to Transports (XTN) in the top ranks. The erratic performance of Homebuilders (XHB) can get wagged over the short term by the UST curve, but the short term core outlook for builders remains poor at this point in margins and pricing. That said, homebuilders have very resilient cash flow dynamics.

In terms of the UST curve and bond ETFs, we see the long duration UST 20+Y ETF (TLT) in slightly negative range. The UST and high quality bond ETFs (GOVT, SHY, AGG, LQD) posted minimal positive returns. The riskier duo (HYG, EMB) performed slightly better with credit spreads very unflappable given the scale of the Iran headlines and related macro noise.

The YTD returns for the broader mix of 32 shows a score of 29-3. The bottom tier shows BDCs in last place with a moderate negative total return of -6.5% as high dividend rates cushion the blow of private credit nerves and some bad, excessive underwriting in the private credit space.

We see weak results in Communications Services (XLC) where numerous top holdings have generated very weak returns (most negative). XLC was dragged down by Meta (META), Netflix (NFLX), Comcast (CMCSA), Disney (DIS), and T-Mobile (TMUS).

The winners in the top quartile show some diversity outside of tech with Transports (XTN) on top ahead of the Tech ETF (XLK) with two energy ETFs (XOP, XLE) and the Russell 2000 rounding out the top 5. The top quartile also included Industrials (XLI) and Materials (XLB) for some cyclical optimism along with Regional Banks (KRE) for some optimism on asset quality.

The YTD Tech Check return profile at a score of 19-13 is a case study in subsector return divergence with the semiconductor and AI ecosystem contrasting with a very different zone seen in the software and SaaS services operators. The Hi-Lo range starts with Micron (MU) at 241.8% and runs through #32 Intuit (INTU) at -58.4%.

Even with the steep selloffs of the past month, entry into the top quartile still required a 42.9% return. We see triple digit returns from #1 MU down through #5 Applied Material (AMAT). At #6, we see the Semiconductor ETF (SOXX) at 88.1% or over 100 points ahead of the Software ETF (IGV) with -14.1%.

The bottom quartile is all software and SaaS running from Intuit (INTU) in last place at -58.4% up to FactSet (FDS) at -13.8% at the top of the low quartile. The Mag 7 YTD weighed in with 4 positive and 3 negative returns spread across the 2^nd, 3^rd, and bottom quartile.

The score seldom changes for the trailing 1-year period with such a strong 2026. We once again see 31-1 with only the BDCs (BIZD) in the red at -12.6%. We see 6 of the 7 bond ETFs in the bottom quartile with EM Sovereign debt making the 3^rd quartile.

In the top tier, tech is unsurprisingly on top with XLK followed by Transports (XTN), Russell 2000, NASDAQ, and Base Metals (DBB) in the top 5. Energy (XLE) joins DBB as side effects of the Iran crisis with Industrials (XLI) and Health Care (XLV) joining a diversified mix in the top tier.

See also:

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26