Five for Friday – August 28, 2026

Yields, Growth, Jobs, Earnings, and Weather

1. Yields

A few thoughts on longer-term bond yields’ march higher and the government’s attempts to steady things:

• Higher borrowing costs can be a thorn in the side of investors and corporate operators but don’t explicitly preclude strong stock market returns. In the 1980s and 1990s long-term yields were well above the levels we see today alongside a generational bull market. And as shown in the chart, the level of bond yields alone has not been predictive of S&P 500 returns on a year-to-year basis.
• What matters more is the speed and size of a move in yields. Our partners at Baird Strategas note that the last three years have seen one of the narrowest ranges for the 10-year yield in history. Despite the headline noise, yields have stayed in a tight range, which has limited spillover effects to equity markets.
• In many ways, this is a normalization after an era of unnaturally low rates. Over the last 100 years, the 10-year Treasury has averaged a yield of ~4.8%. Capitalism works best when capital has a cost. A more normal rate backdrop should help better distinguish productive investment from speculation and ultimately reward profitable capital
• If this upward move in long-term yields represents (at least in part) investor anxiety about the national debt and budget deficit, I don’t think it’s a bad thing. If policymakers continue to not address some of the structural issues facing America’s balance sheet, then the bond market (aka “bond vigilantes” or the “fourth branch") can work to help impose fiscal discipline on the government in ways that few other things can. Cue James Carville’s music.

 2. Growth

For all the discussion about yields and the negative reasons for their ascent, higher long-term rates can also signal confidence in continued economic strength or, at the very least, little concern about a recession. Third quarter GDP growth is expected to be solid, capital spending is robust, labor markets look fairly tight, and many leading indicators are pointing to strength. In fact, the Conference Board’s popular Leading Economic Index just saw its six-month growth rate turn positive for the first time since 2022, with 9 of its 10 components contributing positively over the last half year. All things considered, that's not a backdrop typically associated with an economy on the brink.

3. Job market

One of those leading indicators is manufacturing hours worked, which currently sits at its highest level this decade. We tackle that indicator and a few more in our one-page Labor Day Labor Market Update.

4. Earnings

Perhaps nowhere is the solid growth environment reflected better than in corporate profits, where Nvidia Wednesday delivered the cherry on top of a robust Q2 earnings season that saw +50% year-over-year growth, record margins, and more. The growth reported by companies was largely confirmed this week by the U.S. Dept. of Commerce, whose measure of earnings provides a broader, and in some ways more scientific, measure of profitability (by capturing a larger universe of U.S. companies and stripping out many accounting conventions and financial effects that are not directly tied to production). The question now is how investors react if (or, almost certainly, when) growth slows from here. But it’s reassuring to see the body of evidence growing that this bull market is thus far built on fundamentals over speculation.

5. On this day

in 1964, NASA launched the Nimbus I meteorological satellite. The program, affectionately referred to as the “granddaddy” of the modern Earth-observing fleet, served as an experimental platform for much of the tech that later became standard across the world's weather-monitoring apparatus. Could AI be the next step forward? Given that economic losses related to weather-related hazards have totaled $3.6 trillion since the 1970s, we can certainly hope.  

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