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06/15/2026

Observations & Insights – June 15, 2026
Cars & Coffee is this coming Saturday,
10am to Noon in the Asbury Wealth parking lot.

Markets Cut a Jagged Path
The 0.7% returns that the S&P 500, NASDAQ, and Dow each posted for the week did not come easily, as stocks sold off on Wednesday before rebounding on Thursday and Friday. The modest overall results left the indexes below the record levels recorded in the first few days of June.

Key Points
• Stock markets rebounded slightly after a volatile week.
• While volatility is elevated, the pullback in mega-cap stocks is normal bull market behavior.
• High oil prices continue to drive inflation, but that is not the whole story.
• The much-anticipated Space-X IPO came to market on Friday, capturing investors’ imaginations and capital.

Observations: Inflation Stays Elevated, Europe Raises Rates
The Consumer Price Index (CPI) report showed inflation running at 4.2% in May, the highest level in more than three years. Despite the rise in the annual rate, the month-to-month change eased slightly compared with April’s CPI figure, and inflation readings for non-energy categories were relatively stable. A separate report on wholesale prices showed a 6.5% annual rate for the Producer Price Index, the highest since November 2022.



A U.S. small-cap stock index outpaced its large-cap peers by a wide margin, climbing to a record high and extending small caps’ year-to-date performance leadership. The Russell 2000 Index finished around 4% higher for the week and was up 19% year to date.

The European Central Bank raised its benchmark interest rate for the first time since 2023, lifted its inflation forecast, and downgraded its economic growth outlook. In announcing Thursday’s widely expected quarter-point rate hike, ECB policymakers cited inflationary pressures, elevated energy prices, and the Middle East conflict.

Oil prices continued to take cues from developments in the Middle East, with U.S. crude jumping more than 3% on Wednesday, only to fall on Friday afternoon to the lowest level since mid-April. Oil climbed above $93 per barrel on Wednesday and was trading around $84 on Friday afternoon, down about 6% for the week.

An indicator that tracks investors’ expectations of short-term U.S. stock market volatility traded in a wide range, reflecting shifts in the outlook for the Middle East conflict. On Wednesday, the CBOE Volatility Index closed at the highest level since April 7; by Friday’s close, however, the VIX was trading nearly 18% below the previous week’s closing level.

A monthly gauge of U.S. consumer sentiment improved, snapping a string of three consecutive monthly declines amid elevated energy prices. The University of Michigan’s survey results released on Friday showed that sentiment rose to a preliminary June reading of 48.9 from a final May figure of 44.8.

The two-day U.S. Federal Reserve meeting that’s scheduled to conclude on Wednesday will be the first session led by Kevin Warsh, who’s taking over as Fed chair after his nomination cleared Congress last month. While the Fed is expected to keep interest rates unchanged, Warsh’s post-meeting news conference and an updated policy statement could offer clues about current market expectations for a potential rate hike by year end.

Insights: Five Things to Reflect On
“It is human nature to overestimate risk and underestimate opportunity.” Jeff Bezos

Here are a couple things I have been thinking about lately.

Bad Days Happen
Last Friday, the S&P 500 fell by -2.6%, marking the worst day of the year. Yes, it did not feel good, but after the historic nine-week rally, it would have been foolish not to expect some type of give-back. Something to know, is even the best years have bad days. In fact, we found that 22 years gained at least 20% in a given year, and the average worst-day return was a loss of 3.5%. In fact, there was a day in 1997 when the S&P 500 tanked nearly 7%, yet stocks still gained more than 30% that year. Volitility happens.


Source: FactSet

Breadth Is Holding Up Well
Yes, technology has been taking a well-deserved break, but other areas and sectors are holding up quite well. In fact, on Tuesday, the S&P 500 fell, yet advancing stocks outnumbered the declining stocks by a 2-to-1 ratio, an extremely rare development.

I am encouraged that the number of stocks in the S&P 500 above their 20-day, 50-day, and 200-day moving averages has all been increasing recently, even as the overall market index price has weakened. This is a clue that things are not falling apart; under the surface, things are doing well, as market participants rotate from one sector to the next.


Source: StockCharts

About That Nine-Week Win Streak
Yes, the S&P 500’s nine-week win streak ended recently. And maybe you would expect forward returns after such a strong run to give back a little. But historically, that is just not the case. After a nine-week streak or longer ends, the S&P 500 is higher a year later 80% of the time with an average gain of 9.8%. That is only about average for all periods, but it is important to remember that “average” historically is solidly bullish.


Source: FactSet

This is also the strongest nine-week return we have ever seen to start a streak of nine weeks or longer. Streaks with stronger returns have tended to mean a better follow-up in the next 52 weeks, with the S&P 500 averaging over 20% in the 52 weeks following the prior top three nine-week win streak returns (2023, 1961, 1985).

Stocks Don’t Peak in June
The most recent all-time high was on June 2 and pulled back a max -4.5% so far, but could this really be the peak for the year? We remain bullish, so we do not think so, but something to think about is that June is the only month in history that has never seen the ultimate peak for the year. Yes, most years peak either in January or December, which makes sense, but we do not think this year will be the first one to peak in June, and this is another positive for the bulls.


Source: FactSet

What A Two-Month Rally
Stocks soared for the two months off the late March lows, so some weakness in June is not a huge surprise. Here is a nice way to show this.


Source: FactSet

Putting more context around this, the S&P 500 gained 19.5% in only two months off the late March lows. This was one of the greatest two-month rallies in history, but previous large rallies were all quite bullish going forward.

We found only 7 other times in history when stocks gained more than 19% in 2 months, and in every case, they were higher 1-, 3-, 6-, and 12-months later, with a median return a year later of more than 30%.


Source: FactSet, Bloomberg

Final Thoughts: SpaceX (the IPO)
This week's market action was overshadowed by one of the most significant events in capital markets history: the public debut of SpaceX. The company completed the largest IPO ever, raising approximately $75 billion and achieving a valuation exceeding $2 trillion after a strong first day of trading. Demand was extraordinary, with both institutional and retail investors clamoring for shares, highlighting the continued appetite for innovation, technology, and long-duration growth opportunities.

For investors, the SpaceX IPO is about much more than rockets and satellites. It signals that capital markets remain healthy and willing to fund ambitious ideas despite ongoing concerns about interest rates, government deficits, and economic uncertainty. Many of the most transformative businesses of the past decade have remained private far longer than previous generations of companies, limiting public investors' access to their growth. The successful launch of SpaceX into the public markets could open the door for other highly anticipated private companies to follow. More broadly, the enthusiasm surrounding this offering reinforces a theme we have discussed often: investors continue to reward innovation, productivity, and technological leadership. While short-term volatility is always possible following a highly anticipated IPO, the broader message is one of confidence in American entrepreneurship, confidence in technological progress, and confidence that investors are still willing to look beyond today's headlines toward tomorrow's opportunities.

It is our aim at Asbury Wealth Partners that you find the market commentary we provide informative and useful. As our success grows mainly through referrals from our clients, we encourage you to share this weekly newsletter with your friends, family, and colleagues. If you are a client, we thank you for your business and your confidence. If you are not yet a client, we encourage you to contact us today and explore how our team may be able to add value to your unique financial situation.

Thanks as always for reading, and I hope everyone is off to a great start to summer!

Thank you,

Paul O'Hara, CFP®
[email protected]

Send a message to learn more

06/08/2026

Observations & Insights – June 8, 2026

Market Streak Snaps
The S&P 500 reversed course after nine consecutive weeks of gains, as a Friday sell-off in many semiconductor-related stocks weighed on the broader market. The index finished the week down about -2.5% overall, while the NASDAQ dropped -4.7% and the Dow slipped just -0.2%.

Key Points
• The stock market winning streak finally broke after nine consecutive weekly gains, one of the strongest periods in recent history.
• Market pullbacks are a normal part of investing, but can be violent at times.
• Friday’s jobs report showed strength, despite rhetoric suggesting AI will supplant workers.
• The odds of an interest rate hike are increasing, with a strong jobs market, stubbornly high inflation and strong economic growth.

Observations: Jobs Strength Raises Rate Hike Odds
Recent labor market strengthening extended into May, as jobs growth surpassed economists’ consensus expectations for the third month in a row. The economy added 172,000 jobs, and upward revisions of prior estimates produced an average monthly gain of 188,000 jobs over the past three months. That is the strongest three-month average since March 2024.

A recent bond market sell-off regained momentum after a nearly two-week pause, as yields of U.S. government bonds rose in the wake of Friday’s better-than-expected jobs report. The steepest rise came at the short end of the yield curve, with the 2-year Treasury’s yield closing at 4.16% on Friday, well above the previous week’s closing yield of 4.00%.

Bond market trading reflected rising expectations for a U.S. interest rate increase by year end. Friday’s trading in rate futures markets implied a roughly 72% probability that the Fed would lift its benchmark rate by anywhere from a quarter-point to three-quarters of a point by December, according to CME FedWatch. The probability of rates remaining unchanged was 27%, with less than a 1% probability of a cut.

Bitcoin fell for the fourth week in a row as the price of the most widely traded cryptocurrency tumbled to the lowest level since September 2024. As of Friday afternoon, Bitcoin was trading around $60,000, down nearly 18% for the week. The cryptocurrency is well below a recent peak of around $82,000 reached on May 10 and a record high of $126,000 set last October.

Companies in the S&P 500 posted an average earnings gain of 28.6% over the same quarter a year earlier, according to FactSet data from the recently concluded first-quarter earnings season. That result marked the highest growth rate since the fourth quarter of 2021 and the sixth consecutive quarter of double-digit growth. Information technology posted a 54.0% earnings gain, the highest among all 11 sectors.

The latest developments in the Middle East conflict buffeted oil prices, as U.S. crude traded in a wide range, briefly climbing above $96 per barrel on Wednesday before settling to around $90 on Friday afternoon. For the week, oil was up nearly 4%.

The Consumer Price Index report scheduled for release on Wednesday will show whether a recent trend of rising inflation extended into June. The most recent CPI report showed an annual rate of 3.8% in April, the highest level since May 2023, with energy costs accounting for 40% of the increase from March’s 3.3% figure. Excluding energy and food prices, core inflation was 2.8% in April.

Insights: The Labor Market is Perfectly Fine
So much for the “AI is killing jobs” rehtoric, let alone “the Fed should keep rates low to protect the labor market”. We have been in the camp since the start of the year that the labor market looks better than a lot of economists, market bears, and even the good folks at the Fed may think. We even suggested the labor market may see some re-acceleration. Well, the data are bearing that out right now.

The May payroll report blew past expectations, with the economy adding 172,000 jobs, well above economists’ expectations of just 88,000. Moreover, payroll growth for March and April was revised up by a total of 93,000. That is a reminder that the initial estimate can vary widely, and why it is useful to focus on the 3-month average. The 3-month average of payroll gains is currently 188,000, the highest since March 2024. For perspective, the 3-month average was -39,000 at the end of 2025, and across all of last year, payroll growth averaged a measly 10,000 per month (116,000 jobs created over the full year). What else would you call that other than re-acceleration?


Source: FRED

As noted above, payroll growth can and has been revised a lot in recent years, and that is why it is useful to corroborate what is happening with other data points. Notably, the unemployment rate comes from a household survey (payroll growth numbers come from a business survey). Well, the unemployment rate is sitting near historical lows at 4.3%. This should not be a huge surprise, given that payroll growth is clearly outrunning population growth (especially with immigration pulling back). There is no question that the labor market was weakening last year, with the unemployment rate rising from 4% to 4.5% between January and November, but we have clearly turned the corner now.


Source: FactSet

Better yet, the prime age (25-54) employment-population ratio rose to 80.8%, just shy of this cycle’s peak of 80.9% and higher than at any point between May 2001 and March 2023. In other words, more people in their prime working age years are employed today than at any point during the last two expansion cycles (relative to the age group’s population).


Source: FactSet

The prime-age employment-population ratio is useful because it gets around the fact that we have an aging population (so more people leave the labor force every day), and definitions around who is actually counted as “unemployed”, an unemployed worker who is “actively” looking for a job is counted as unemployed, but not someone who has given up after months of searching. The fact that the prime-age employment-population ratio is as high as it is goes against the prevailing narrative that “AI is taking away jobs.” That is not even the case for young people, whose job prospects AI would have a greater (adverse) impact on. Yet, for 20-24 year olds, the unemployment rate has fallen from 9.2% last September to 7.2% in May, even as AI implementation has grown.


Source: FactSet

Better Employment Breadth
Things are even looking better under the hood. Over the past few years, employment gains within the health care sector have dominated job growth, while more cyclical areas of the economy lagged. This was especially the case in 2025, but that’s changed recently.

Over the past three months, payrolls have grown by 565,000. Health care payroll growth remains dominant, accounting for 35% of total payroll growth (198,000 jobs). But several cyclical areas are also showing up well, including leisure and hospitality (+144,000), transportation and warehousing (+65,000), professional and business services (+56,000), construction (+41,000), and even manufacturing (+22,000). The rebound in manufacturing is welcome, especially since manufacturing payrolls fell by 88,000 between February 2025 and February 2026.


Source: FRED

One prominent area where job growth is lagging is the tech industry. Payrolls across the telecommunications and data processing/hosting/related services industry have fallen by about 40,000 over the last year and have been flat recently. However, rather than AI replacing workers, it is more likely a result of companies laying off workers from over-hiring during COVID to free up capital budgets for AI-related infrastructure.

The Fed is Fiddling While Inflation Burns
The labor market looks strong right now, and inflation is heating up. As I have been pointing out for several months now, this is not just an energy problem because the Strait of Hormuz remains shut. The fact that the Strait remains shut is certainly a problem, and it is going to feed into non-energy inflation as well, via higher food prices and transportation costs. But we are also seeing elevated inflation due to AI-related bottlenecks, tariffs, and even core services (ex-housing) inflation. The personal consumption expenditures (PCE) index for core services is up 3.6% from last year and running at a 3% annualized pace over the last three months (through April). For perspective, the pace was just 2.2% in 2018-2019. The fact that services inflation is running hot has been a sign that the labor market is in better shape than headline numbers suggested up until a few months ago, i.e., there would not be upward price pressure on services if wage growth was weak and people were losing their jobs.


Source: FRED, Bloomberg

The fact that inflation is running hot and rising, while the Fed keeps interest rates unchanged, to me means policy is getting loose, possibly too loose. Normally, a backdrop of a relatively healthy labor market and elevated (and rising) inflation would have the Fed thinking about rate hikes. Instead, it looks like the Fed, especially under incoming Chair Kevin Warsh, will look past elevated inflation. This could be dangerous both economically and politically.

For now, an easier monetary policy is good news for the stock market. However, the problem grows behind the scenes. At some point, whether it is a year from now or 2-3 years from now, the Fed may realize that inflation has run too high for too long and will have to be even more aggressive to get inflation back to target. Policy rates should probably be about 0.5% to 1.0% higher than they are now.

To be clear, the inflation problem can hardly be laid at the Fed’s feet. The fiscal deficit is running around 6% of GDP, well above anything we have seen this deep into an economic expansion, usually as expansions wear on, the deficit gets smaller, but the opposite is happening now. With Congress and the administration asleep at the wheel, the job lands at the Fed to pull things back. But it does not look like a Warsh-led Fed is ready to tackle it; instead, it wants to move the inflation goalposts (including removing “outliers”) to keep policy easy and run things hot.

In my opinion, and the bond market is already reflecting this, there is clearly a cost, in the form of higher inflation and higher bond yields (which add to the federal government’s interest burden). Higher inflation means real (inflation-adjusted) wage growth is falling. Higher bond yields translate to higher borrowing costs across the economy, including higher mortgage rates, and that is shutting out an entire cohort of millennials from the housing market. Keep in mind that housing has historically been the primary vehicle for building wealth for middle-income households, but the entryway is now blocked by high mortgage rates.

Volatility Is the Price of Admission
This week's market action served as an important reminder that pullbacks are a normal and healthy part of investing. While headlines often make short-term market declines feel significant, history shows that stock market selloffs occur regularly, and sometimes violently, even during some of the strongest bull markets on record.

S&P 500 Pulls Back (1-week)

Source: Seeking Alpha

Which is Perfectly Normal in a Bull Market, S&P 500 (2026 to date)

Source: Seeking Alpha

Investors often forget that volatility is not a flaw of the stock market; it is the price we pay for the opportunity to earn higher long-term returns. Every meaningful bull market has experienced periods of uncertainty, profit-taking, and sharp short-term declines along the way. The path to long-term wealth creation has never been a straight line.

S&P 500 Volatility Index (VIX) 1-week

Source: Seeking Alpha

One of the biggest mistakes investors make is confusing volatility with risk. Volatility is temporary price movement. Risk is the permanent loss of capital. For disciplined investors focused on long-term goals, temporary market declines are often little more than noise within a much larger upward trend.

The current backdrop remains constructive. Corporate earnings continue to grow, economic activity remains resilient, and the Federal Reserve still appears positioned to keep policy accommodative. While markets will undoubtedly experience additional bouts of volatility, those periods should be expected rather than feared.

A useful perspective is that pullbacks are often the mechanism that keeps bull markets healthy. Excess optimism gets reset, speculative positions are reduced, and valuations become more attractive. In many cases, the strongest advances occur after periods of market discomfort.

As investors, our job is not to predict every short-term market move. Our job is to remain disciplined, focused on fundamentals, and committed to a long-term plan. Market volatility can be uncomfortable, but it is also entirely normal. The investors who are ultimately rewarded are usually the ones who stay invested when uncertainty feels the greatest.

Final Thoughts
The lesson from this week is simple: volatility is inevitable, but abandoning a sound investment strategy because of it is often far more damaging than the volatility itself. Bull markets do not climb in a straight line. They advance through a series of rallies, pauses, and pullbacks. Volatility is the fee investors pay for long-term wealth creation. This week's sell-off may have felt uncomfortable, but history suggests that temporary declines are often the toll road, not the roadblock, to long-term investment success.

It is our aim at Asbury Wealth Partners that you find the market commentary we provide informative and useful. As our success grows mainly through referrals from our clients, we encourage you to share this weekly newsletter with your friends, family, and colleagues. If you are a client, we thank you for your business and your confidence. If you are not yet a client, we encourage you to contact us today and explore how our team may be able to add value to your unique financial situation.

Thank you,

Paul O'Hara, CFP®
[email protected]

Send a message to learn more

06/01/2026

Observations & Insights – June 1, 2026

Markets Push Higher
The U.S. stock market extended its springtime rebound from the first quarter’s negative results as the S&P 500 recorded its ninth consecutive weekly gain. Led by information technology stocks, the NASDAQ finished 2.4% higher for the week, the S&P 500 added 1.4%, and the Dow gained 0.9%.

Key Points
• The bull market remains remarkably strong, with the S&P 500 extending its winning streak to nine consecutive weeks, one of the strongest stretches in market history.
• The economy continues to grow, but inflation remains stubbornly high.
• The AI investment cycle remains a powerful driver of earnings growth and market performance.
• Bonds are struggling as Treasury yields climb to multi-year highs.

Observations: Inflation Runs Hot, but it is (Still) All About Earnings
May’s U.S. stock market gains were big, though they fell short of the unusually strong results recorded in April. The NASDAQ climbed 8.4% in May, the S&P 500 gained 5.1%, and the Dow rose 2.8%. In April, the NASDAQ and the S&P 500 both recorded double-digit gains, rebounding from negative first-quarter results.

For the second time in three weeks, a monthly report showed U.S. inflation running at the highest level since May 2023. Thursday’s Personal Consumer Expenditures Price Index report showed an annual rate of 3.8% in April, the same headline inflation figure reported a couple of weeks earlier as measured by the Consumer Price Index (CPI). Excluding food and energy prices, April’s core PCE inflation was 3.3%.

Investor optimism over the latest round of U.S.-Iranian negotiations sent oil prices lower for the second week in a row. U.S. crude was trading around $88 per barrel on Friday afternoon, down nearly -10% for the week, and roughly -16% lower for May.

The U.S. economy’s expansion in this year’s first quarter was slower than initially estimated. The Commerce Department reported that GDP grew at an annual rate of just 1.6% in the January-to-March period, down from an initial estimate of 2.0%. The reduction stemmed from downward revisions to consumer spending and investment.

Wall Street analysts’ forecasts for second-quarter earnings have steadily risen over the past couple of months. FactSet reported on Friday that analysts raised their quarterly earnings expectations for S&P 500 companies by 2.5% in April and May. Second-quarter results are set to be released beginning in mid-July.

Stock indexes in South Korea and Japan climbed to record highs on Friday. A South Korean benchmark surged nearly 11% for the week amid optimism over AI-related stocks, while a Japanese index rose nearly 2%.

A jobs report due out on Friday will show whether recent strengthening in the labor market extended into May. In April, the economy added an above-forecast 1115,000 jobs on the heels of March’s gain of 185,000. The back-to-back monthly increases marked a shift from a pattern of alternating job losses and gains seen over the previous 10 months.

Insights: The Market Continues to Follow the Money
We sound like a broken record, but stocks gained again last week as the bull market rolls on. Just a few months ago, many investors were worried that the economy was headed for a slowdown and that a recession was only a matter of time. Instead, we have seen a very different outcome. As we enter the second half of the year, economic growth remains positive, corporate earnings continue to surprise to the upside, and the market has pushed higher despite a steady stream of headlines that might suggest otherwise.

The biggest story remains the same one we have been discussing throughout the year: artificial intelligence. The amount of capital being deployed into AI infrastructure is staggering. Technology companies are spending hundreds of billions of dollars building data centers, purchasing chips, and expanding cloud capacity. That spending is flowing through the economy, supporting corporate revenues, earnings growth, and ultimately stock prices. While we have yet to see the full productivity benefits of AI show up in the economic data, the investment cycle itself is already having a meaningful impact.

At the same time, the economy continues to show surprising resilience. The labor market remains healthy, despite the threat of AI making many jobs obsolete. Unemployment is still near historically low levels while consumers continue to spend. Government spending and fiscal deficits are also providing significant support for economic activity. None of this looks like an economy that is preparing for a recession.

The challenge, however, is inflation. While energy prices and geopolitical tensions have certainly contributed, inflation is proving to be broader and more persistent than many expected. Demand remains strong, spending remains healthy, and companies continue to have pricing power. As a result, the market has shifted from expecting multiple interest rate cuts this year to recognizing that rates may stay higher for longer, and there is even some discussion about whether rate hikes could become necessary.

This creates an unusual environment where stocks and bonds are telling two different stories. Stocks continue to focus on strong earnings growth and the opportunities created by AI, while bonds are focused on inflation, government deficits, and the possibility that interest rates remain elevated for longer than expected. Rising Treasury yields are a reminder that inflation still has real consequences, even when equity markets are performing well.

Welcome to the Fed Mr. Warsh
After more than eight years in charge of the Fed, Jerome Powell has officially stepped down as chair and Kevin Warsh takes the baton to lead the largest central bank in the world.

Powell navigated COVID, a generational spike in inflation, an extremely aggressive rate hike cycle in 2022, Washington drama, wars, and more in his eight years. Did he get everything right? No, as he did not foresee the jump in inflation in 2022 (who can forget “transitory,” a phrase we seem to be flirting with again), but overall, he has navigated things well and done an admirable job. Other than two months in 2020, the economy avoided a recession, and investors have done well under his leadership. In fact, the Dow gained 97.0% during his tenure, for an annualized return of 8.5%, which ranks eighth out of the 16 Fed Chairs. Fun stat: Janet Yellen was the shortest Fed Chair (height, not tenure), but stocks gained a very impressive 12.9% annualized under her leadership, ranking second only to Eugene Black.


Source: FactSet

Historically, markets have often tested new leadership at the Fed. The most famous example is in 1987, when the market crashed soon after Alan Greenspan took over. There were many other times trouble brewed within six months of new leadership as well, with multiple challenges in in the 1910s and 1930s, and in more recent times after Arthur Burns and then Paul Volcker took over.

In fact, the Dow historically has had an average peak-to-trough decline of -15.2% within the first six months of new Fed leadership. The good news is the past three new Fed chairs saw relatively calm seas, so this is not a sure thing by any means. Of course, with inflation and higher yields, the market very well could test Warsh… stay tuned!


Source: FactSet

What’s Behind the Bond Market Rout?
Looking at the equity market hitting all-time highs, you could be forgiven for thinking all is well. But you do not have to look too far to see where there is pain: the bond market has been struggling. We have been talking about an inflationary growth regime since the start of the year, and equities doing well while bonds struggle is par for the course in this environment. Still, it has been a particularly rough stretch for bond investors (most people are bond investors with at least some of their portfolio).

Treasury yields surged late last week, but this was not a one-day event. Yields have been climbing across the curve since the U.S./Israel-Iran war began and the Strait of Hormuz was closed. From February 27, the eve of the war, through May 18:
• The 2-year Treasury yield rose from 3.37% to 4.12%, an increase of 0.75 percentage points.
• The 10-year Treasury yield rose from 3.94% to 4.56%, an increase of 0.62 percentage points.

These are significant moves, and they have come about in a relatively short period of time.


Source: Bloomberg

The Front End of the Yield Curve Says the Fed Is Behind
The 2-year yield at 4.12% means that the market expects the short-term policy rate to average that level over the next two years, well above the current policy rate of 3.63%.

In fact, the probability of a rate hike in 2026 has increased to 70%, making a rate hike this year the base case (just barely, as anything between 30% to 70% is really just a coin toss). Here is a chart showing market expectations for policy rates over the next several years.
• On the eve of the mid-east crisis, markets were expecting a couple more rate cuts this year, taking the policy rate to almost 3%. Markets did expect a series of rate hikes from 2028 onwards, but gradually, with the policy rate exceeding its current level only in 2031.
• The entire curve has now shifted above the current policy rate of 3.63%, implying markets now expect the Fed to hike rates this year and continue lifting them beyond 2026.


Source: Bloomberg

In other words, market participants expect rates to stay higher for longer as the Fed looks to get a grip on inflation. Hence, it should not be a surprise that even long-term rates are rising. On the other end of the yield curve, the 30-year Treasury yield hit a peak of 5.19%, the highest level in 30 years. It has pulled back to about 4.97% now, but for reference, it was 4.61% on the eve of the war.


Source: Bloomberg

The bond market clearly does not like elevated inflation, which is why yields are rising. But there is also the prospect of falling demand from abroad as yields on non-U.S. government bonds rise and become more attractive.

Closed Strait = Higher Oil Prices = Inflation Problem
The Strait of Hormuz remains shut, and oil prices remain elevated. Higher oil prices mean higher inflation, and higher inflation means higher yields. It really is that simple.

The U.S.-China summit produced no progress on the Middle East front. There was hope that China might pressure Iran to reopen the Strait of Hormuz. That did not happen. China said it wants oil flowing again, but it appears comfortable with Iranian control of the strait, including the possibility of Iran charging ships a toll to pass through. That remains unacceptable to the U.S., at least for now.

While the Middle East stalemate continues, though, there seems to be more positive news over the last few days. Once again, turmoil in the bond market rather than the stock market increases odds of a U.S.-Iran deal. Without a deal, and with each passing day, global oil reserves are being drawn down, including in the U.S., which is drawing oil from its Strategic Petroleum Reserve (SPR) at a record pace. The likelihood of the inflation problem growing even larger increases as a result, which is why bond yields are surging.

Final Thoughts
The key takeaway is that the bond market is absorbing the cost of higher inflation. Equities remain strong because we have inflationary growth (rather than stagflation). Nominal GDP growth is running hot, and that benefits corporate revenues and profits. AI-related capex is another tailwind, though this is also pushing inflation higher and putting even more upward pressure on bond yields. For now, a Fed led by Kevin Warsh looks set to look past this immediate bout of inflation and let things run hot. We will see how long the bond market allows them to remain comfortable with that stance.

For now, we continue to believe the path of least resistance remains higher for equities. Earnings growth remains strong, economic activity is holding up, and the AI investment cycle appears to have plenty of runway ahead. At the same time, we believe diversification remains critical. History has shown that markets can remain optimistic for much longer than expected, but they can also change direction quickly when expectations become too extreme.

It is our aim at Asbury Wealth Partners that you find the market commentary we provide informative and useful. As our success grows mainly through referrals from our clients, we encourage you to share this weekly newsletter with your friends, family, and colleagues. If you are a client, we thank you for your business and your confidence. If you are not yet a client, we encourage you to contact us today and explore how our team may be able to add value to your unique financial situation.

Thank you,

Paul O'Hara, CFP®
[email protected]

Send a message to learn more

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Wednesday 7:30am - 4:30pm
Thursday 7:30am - 4:30pm
Friday 7:30am - 4:30pm

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