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08/31/2026

Observations & Insights – August 31, 2026

Markets Gain Fractionally
The S&P 500, NASDAQ, and Dow posted fractional weekly gains, regaining ground from the previous week’s modest declines. Stocks traded in a narrow range for the third consecutive week following a four-day rally that began on July 30.

Key Points
• Stocks remain near record highs despite higher Treasury yields and a more hawkish Federal Reserve.
• Strong corporate earnings are helping offset the pressure that higher interest rates are putting on stock valuations.
• NVIDIA's results reinforce that massive AI investment is translating into real revenue and earnings growth.
• The $40 trillion national debt cannot be solved by economic growth alone and will eventually require difficult fiscal choices.
• The biggest risk for stocks would be a combination of still-higher interest rates and weakening corporate earnings.

Observations: Stocks Resilient Despite Higher Bond Yields & a Hawkish Fed
U.S. stock indexes wavered after U.S. Federal Reserve Chair Kevin Warsh emphasized inflation risks in a speech Friday morning at a symposium in Jackson Hole, Wyoming. With recent inflation readings remaining well above the Fed’s 2% target, Warsh said that the central bank “must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”

The bond market’s reaction to the Fed chair’s speech on Friday was the most pronounced at the short end of the yield curve. The yield of the 2-year Treasury rose to 4.35% on Friday afternoon, up from 4.23% at Thursday’s close, and bond trading reflected a rise in investors’ expectations for a potential interest rate hike at the Fed meeting that concludes on September 16.

The latest reading from the Fed’s preferred gauge for tracking inflation rose modestly. The Personal Consumption Expenditures Price Index rose 0.2% in July relative to the previous month, bringing the annual rate to 3.7%. Both figures were slightly above economists’ consensus expectations.

An index that tracks investors’ expectations of short-term U.S. stock market volatility fell on Friday to a year-to-date low on an intraday basis. The CBOE Volatility Index fell to as low as 14.1 in morning trading before closing at 14.4, down from a recent high of 20.9 reached on July 29.

The modestly positive weekly results for U.S. large-cap stocks did not extend to smaller companies, as a small-cap benchmark fell in the wake of the Fed chair’s speech on Friday morning. Kevin Warsh’s comments fueled rising market expectations for a potential interest rate increase, and the Russell 2000 Index fell 1.4% for the day.

A monthly gauge of U.S. consumer sentiment fell amid continued worries about the inflation outlook. The University of Michigan reported on Friday that its Index of Consumer Sentiment fell to 51.7 in August, down from a 55.2 reading in July. Despite the decline, sentiment remains above the record low of 44.8 that was recorded three months earlier.

A monthly labor market report due out on Friday will show whether a recent weakening trend for the labor market extended into August. July’s report showed a decline of 23,000 jobs, and initial growth estimates for May and June were scaled back sharply. Factoring in the latest figures, the three-month average fell to 20,000 jobs created per month—a sharp turnaround from March, when the economy added 214,000.

Insights: Higher Rates, Higher Earnings
Last week, we spent quite a bit of time discussing the bond market and the message being sent by rising Treasury yields. This week, I want to take that discussion one step further: What do higher bond yields mean for stocks, and why has the stock market remained so strong despite them?

It is a particularly relevant question today. The 10-year Treasury yield is approaching 5%, inflation remains above the Federal Reserve's target, and Fed Chairman Kevin Warsh used his Jackson Hole speech Friday to remind investors that the fight against inflation is not over. Yet the S&P 500 remains near record highs.

I think the explanation is fairly straightforward. Higher interest rates are creating a headwind for stock valuations, but corporate earnings are growing fast enough to offset much of that pressure.

Stocks Have More Competition
Stocks and bonds ultimately compete for investor dollars. When Treasury securities yielded 1% or 2%, investors seeking meaningful long-term returns had relatively little incentive to own bonds. Today, investors can earn close to 5% on longer-term Treasury securities. That is real competition for stocks.



The chart above shows just how close that competition has become. The S&P 500's forward earnings yield is now about 5.1%, while the 10-year Treasury yield is approaching 5%. That spread has narrowed considerably, meaning investors are receiving less additional earnings yield from stocks relative to what they can earn from Treasuries. Normally, we might expect that to put significant pressure on stock prices. So far, however, rapidly rising corporate earnings have helped offset that pressure.

Higher Treasury yields also affect what investors are willing to pay for future corporate earnings. Simply put, when investors can earn a higher return from a relatively safe investment, stocks have to offer greater potential returns to justify their additional risk. That tends to put downward pressure on stock valuations.

We are beginning to see that adjustment, but perhaps not in the way many investors would expect. Over the past year, the S&P 500 has risen approximately 18%, while expected earnings have increased roughly 35%. Because earnings have grown considerably faster than stock prices, the market's forward P/E ratio has actually declined. That is encouraging. Companies are increasingly growing into their valuations rather than relying on investors to continually pay higher prices for the same amount of earnings.

Earnings Are Winning the Tug-of-War


NVIDIA provided an extraordinary example last week. The company reported quarterly revenue of $96.2 billion, more than double the amount from a year earlier. Its data-center business alone generated $89 billion in revenue, an increase of 117%.

NVIDIA is an extreme example, but earnings strength extends well beyond one company. With nearly all S&P 500 companies having reported, second-quarter earnings are tracking roughly 35% higher than a year ago. Some of that growth reflects unusual or temporary factors, so we should not expect earnings to continue growing at anything close to that pace indefinitely. Nevertheless, corporate profitability remains very strong.

NVIDIA's results also provide more evidence that the artificial intelligence investment cycle is becoming a real economic and earnings story. The enormous amounts being invested in chips, data centers, networking equipment, power generation and other infrastructure are translating into actual revenues and profits.

This helps explain why stocks have been able to withstand higher interest rates. Rates are putting pressure on how much investors are willing to pay for earnings, but the earnings themselves continue to grow.

The $40 Trillion Question
There is another important part of the bond-market story that should not be ignored. The federal government's gross debt recently surpassed $40 trillion.

We do not expect the United States to someday pay off the national debt entirely, nor do we believe that should necessarily be the goal. Treasury debt plays an important role in our financial system and provides a key foundation for borrowing, investing and global financial markets. The more important question is whether the debt continues growing faster than the economy that ultimately supports it.

That is where we have a legitimate concern.

Faster economic growth would certainly help, particularly if artificial intelligence and other technologies produce the productivity improvements we expect. But the United States cannot realistically grow its way out of the current fiscal problem. With annual federal deficits running at historically high levels outside of recessions or national emergencies, eventually Washington will have to address the other side of the equation.

That will require political will. Spending growth will need to be restrained, revenues may need to be addressed, or some combination of adjustments will have to occur. We do not believe the federal budget needs to be perfectly balanced every year. A more realistic goal would be to move the annual deficit toward approximately 3% of GDP while finding ways to increase real economic growth toward 3%. That would not eliminate the national debt, but it would put the country's finances on a considerably healthier trajectory.

There is also an investment implication. The federal government is competing for capital at the same time America's largest companies are investing enormous sums in AI and other potentially productive assets. Investors therefore have choices.

A Treasury bond offers a highly reliable but fixed stream of payments. A successful business offers less certainty, but it also has the ability to grow its revenues, earnings, cash flow and dividends. It is possible that some investors simply see greater long-term return potential in America's best companies than in locking in a fixed stream of Treasury payments

That does not make stocks safer than Treasury bonds. They are not. But it does help explain why investors can remain attracted to stocks even with Treasury yields approaching 5%.

Warsh: The Fed Is Not Finished
Chairman Warsh added another dimension to the interest-rate discussion Friday at Jackson Hole. He described an economy that remains resilient, with solid economic activity, strong business investment and a labor market that he believes remains consistent with full employment. At the same time, inflation continues to run above the Fed’s 2% target, and Warsh said the improvement seen in some recent inflation readings has not yet been enough to establish a convincing downward trend.

Much of the immediate market and financial media reaction concluded that Warsh is signaling another interest-rate increase. I think his message was more nuanced. He made clear that the Fed remains concerned about inflation, but he was equally careful not to commit to a particular interest-rate decision. In fact, Warsh emphasized that policymakers should remain flexible and respond to economic conditions rather than signal their decisions in advance.

That may be one of the more important takeaways from the speech and I think the market may have missed it. Warsh wants markets to spend less time trying to anticipate the Fed’s next move and more time evaluating the economy itself. He argued that excessive “forward guidance” can distort market signals and limit the Fed’s own flexibility when conditions change. His preference appears to be a quieter Fed that keeps its options open and allows economic data to guide each decision.

For investors, that means both higher and lower rates remain possible depending on what happens next. Inflation is still too high, which argues for patience and leaves additional tightening on the table. At the same time, Warsh explicitly stopped short of signaling that a rate increase is coming. The message from Jackson Hole was less about predicting the next rate move and more about restoring flexibility to monetary policy.

What Could Change the Picture?
That brings us to what I believe is the most important risk to watch.

The 10-year Treasury moving above 5% would create additional competition for stocks and probably put more pressure on valuations. But the level of interest rates by itself is not what concerns me most.
The combination I would worry about is higher interest rates and falling corporate earnings.

That would give investors a more attractive alternative in bonds at precisely the same time that the fundamental support underneath stock prices was weakening. Fortunately, that is not what we are seeing today.

For now, earnings continue to grow, economic activity remains resilient, and businesses continue investing heavily in future growth. Those conditions are allowing stocks to absorb interest rates that might otherwise create considerably more pressure.

Final Thoughts
Higher Treasury yields matter. Bonds are offering stocks their most meaningful competition in years, and higher rates are putting pressure on what investors are willing to pay for future corporate earnings.

But earnings matter too, and right now they are winning the tug-of-war.

We should not dismiss the risks. Inflation remains above the Fed's target, another rate increase is possible, and the country's $40 trillion debt burden eventually requires serious political attention. Faster economic growth would help, but we cannot simply assume that growth will solve the fiscal problem.

At the same time, corporate America continues to produce strong earnings, the economy continues to expand, and AI investment is increasingly translating into measurable revenue and profit growth. That combination helps explain why stocks have remained strong even as bond yields have moved higher. Higher interest rates have raised the bar for stocks. So far, earnings continue to clear it.

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

08/24/2026

Observations & Insights – August 24, 2026

Modest Pullback
The S&P 500 and the NASDAQ fell around -1% to -2%, snapping a three-week string of gains as an unusually strong quarterly earnings season neared an end. The S&P 500 ended the week -1.6% below the record high that it set the previous week, while the NASDAQ was -3.4% shy of the historic peak it reached in early June.

Key Points
• Stocks pulled back modestly as rising global bond yields pressured risk assets.
• The 30-year Treasury yield climbed above 5%, reaching levels not seen since 2007.
• Higher long-term yields reflect more than rising government debt; economic resilience and intense competition for capital are also contributing.
• The yield curve is normalizing, with long-term rates once again above shorter-term rates.
• Higher government interest expense is also higher interest income for bondholders, including pension funds, retirees, and the Social Security trust funds.
• We remain constructive on stocks as corporate earnings, AI investment, and productivity growth continue to support the longer-term bull market.

Observations: Bond Market Yields Rise as US Debt Hits $40 Trillion.
Treasury bond yields rose slightly during a week when the U.S. government’s gross debt total climbed above the $40 trillion threshold for the first time. The 30-year yield ended the week at 5.27%, near its highest level in almost two decades. The 10-year yield was at 4.73%, with the 2-year yield at 4.23%.

U.S. Treasury Secretary Scott Bessent sought to ease longer-term borrowing costs, announcing that the U.S. Treasury would double the size of a bond buyback program starting next month to $4 billion per session from $2 billion. The move targets the 10-, 20-, and 30-year Treasury segments, where some yields recently climbed to the highest levels since 2007.

With inflation pressures elevated across much of the globe, long-term government borrowing costs remain high in many of the world’s biggest economies. The yield of Japan’s 10-year bond climbed on Tuesday to its highest level in about three decades, and Germany’s 30-year yield rose to the highest level since 2011.

The price of the most widely traded cryptocurrency surged to the highest level in three months. Bitcoin traded above $77,400 on Friday afternoon after finishing the previous week around $63,000. Even with the recent gain, Bitcoin was down more than 11% on a year-to-date basis.

Oil prices rose for the second week in a row, driven largely by developments in the Middle East and the Strait of Hormuz. On Friday afternoon, U.S. crude was trading around $87 per barrel, up from $82 a week earlier. Even with the latest rise, oil prices remained well below a recent peak reached on July 23, when crude briefly traded above $92.

The price of gold climbed for the third week in a row and on Friday reached the highest level in more than three months, with gold futures trading around $4,670 per ounce in the afternoon. As recently as mid-July, the precious metal had been trading as low as $4,000.

Investors and economists will turn their attention to the Rocky Mountain town of Jackson Hole, Wyoming, where the U.S. Federal Reserve will hold its annual three-day economic policy symposium beginning Thursday, August 27. Fed Chair Kevin Warsh is among the featured speakers, with an address scheduled on Friday.

Insights: The Bond Market Is Sending a Message
For most investors, the stock market gets all the attention. The bond market is quieter, less exciting, and considerably more difficult to explain. But every once in a while, bonds become the most important story in financial markets. Last week was one of those times…

Long-term Treasury yields climbed to levels not seen since 2007, with the 30-year Treasury briefly moving above 5.30% and ending the week around 5.27%. The 10-year Treasury finished near 4.74%. Those moves put pressure on stocks, particularly some of the higher-growth areas of the market, and raised an obvious question: Why are interest rates rising when the economy and economic data still look relatively good?

The answer is more complicated than simply blaming inflation or the Federal Reserve. Government borrowing has increased dramatically, corporations are competing for enormous amounts of capital, the artificial intelligence investment boom continues to accelerate, and the economy remains stronger than many expected. At the same time, investors are demanding greater compensation to commit their money for decades.

I believe the message from the bond market is important, but not necessarily bearish. In many respects, the bond market may simply be returning to the role it was designed to play, that is, determining the price of capital.

A Quick Lesson on Bonds
Before discussing what is happening, it helps to understand one fundamental relationship: bond prices and bond yields move in opposite directions. When investors aggressively buy Treasury bonds, prices rise and yields fall. When investors sell bonds, or demand greater compensation to own them, prices fall and yields rise.

The Federal Reserve has enormous influence over short-term interest rates through the federal funds rate. But the Fed does not directly determine what investors will demand to lend the U.S. government money for 10, 20, or 30 years. The market does.

Long-term bond investors must consider expected economic growth, inflation, government borrowing, competing investment opportunities, and the return required to commit capital for decades.

Right now, investors are demanding more.

Why Are Long-Term Rates Rising?
There is no single explanation. Several powerful forces are converging.

The first is the enormous amount of government borrowing. Federal debt has now surpassed $40 trillion and financing that debt requires the Treasury to continually issue securities. When the supply of bonds grows, investors must be willing to absorb that additional supply. If demand does not keep pace, yields have to rise until buyers emerge. Put more simply, Washington needs to borrow a tremendous amount of money, and the market is increasingly saying: If you want our money, you are going to have to pay more for it. That is not necessarily a debt crisis. It is price discovery.

New Borrowing and Refinancing of Treasury Securities


Government borrowing is also competing with extraordinary private-sector demand for capital. U.S. corporate bond issuance reached approximately $1.68 trillion by mid-August, about 27% more than during the comparable period last year. Businesses are investing enormous sums in data centers, semiconductors, electrical infrastructure, manufacturing, and the systems necessary to support the artificial intelligence revolution. Thus, long-term Treasury borrowing costs have been pressured by both concerns about government deficits and competition for capital from the AI data-center build out.

That does not mean the AI boom is solely responsible for higher Treasury yields. It does mean that the federal government is not borrowing in a vacuum. Washington is asking investors for enormous amounts of capital at the same time that some of the world's most profitable corporations are doing the same thing.

There is another factor that I believe is equally important: the economy is simply doing better than many expected.

When investors become worried about recession, they typically seek the safety of Treasury bonds. That buying pushes bond prices higher and yields lower. When the economy remains strong and corporate earnings are growing, investors have more attractive alternatives. If stocks and corporate investments offer compelling prospective returns, investors may demand 5% rather than 4% before committing money to a Treasury security for decades.

Ironically, some of the forces pushing long-term yields higher are the same forces that make us optimistic about stocks over the long run.

Keep the 30-Year Treasury in Perspective
The headlines surrounding the 30-year Treasury can make it sound as though the entire Treasury market is suddenly borrowing at more than 5%.This is simply not the case.

The 30-year bond is an important indicator of long-term inflation, growth, and fiscal expectations, but newly issued 30-year bonds represent a relatively small portion of overall Treasury financing. Most federal borrowing and refinancing takes place through shorter-maturity Treasury bills and notes and that distinction matters.

A 30-year Treasury yield above 5% does not mean the federal government suddenly refinances its entire $40 trillion debt load at that rate. Treasury debt is spread across many different maturities, with a weighted-average maturity of approximately six years. About one-third of marketable Treasury debt matures within the next year, while roughly 18% does not mature for at least a decade. As a result, higher interest rates work their way into the government's borrowing costs gradually as existing securities mature and are replaced with newly issued debt.

Maturity Distribution of Marketable Debt Outstanding



The 30-year Treasury is therefore better viewed as a signal. Investors willing to commit capital for three decades are telling us what return they currently require to accept the risks of inflation, fiscal policy, and lost investment opportunities over a very long period.

The 30-year Treasury may be relatively small compared with the overall Treasury market, but the message it sends can be significant.

Are 5% Interest Rates Really That High?
For investors who became accustomed to the extraordinarily low interest rates following the 2008 financial crisis, a 5% long-term Treasury yield feels exceptionally high.

Historically, it is not.



What was unusual was the extended period in which interest rates remained near zero, with the Federal Reserve purchasing trillions of dollars of Treasury and mortgage securities. For much of the post-financial-crisis era, monetary policy deliberately pushed interest rates lower in an effort to stimulate economic activity. That environment fundamentally changed how investors valued assets.

When Treasury securities yielded 1% or 2%, investors had tremendous incentive to move into stocks, real estate, private equity, and other risk assets in search of higher returns. At 5%, the calculation changes as a Treasury security yielding approximately 5% provides a legitimate alternative to stocks for certain investors. That does not mean stocks suddenly become unattractive, but it raises the hurdle they must clear.

In many respects, what feels abnormal today may actually be closer to historical normality. What was truly abnormal was nearly two decades of extraordinarily cheap money.

Why Bond Yields Matter to Stocks
There are several ways higher bond yields affect the stock market.

First, bonds compete directly with stocks for investor capital. If an investor can earn approximately 5% from a high-quality Treasury security, that investor may be less willing to pay an elevated valuation for stocks.

Second, higher interest rates increase borrowing costs for corporations. Companies financing acquisitions, factories, equipment, data centers, or share repurchases must pay more for that capital. Higher financing costs can eventually pressure profit margins.

Third, interest rates are part of the mathematics used to value future corporate earnings. The further into the future investors expect a company's profits to arrive, the more sensitive its valuation tends to be to interest rates. That is one reason high-growth technology companies can react particularly sharply when long-term yields rise.

Finally, Treasury yields influence borrowing costs throughout the economy. Mortgage rates, auto loans, commercial real estate financing, and corporate borrowing rates all take cues from the Treasury market.
This helps explain why stocks struggled as long-term rates climbed last week. The bond market was reminding stock investors of something that was easy to forget during the zero-interest-rate era: Capital has a price again.

Higher Government Interest Expense Has Another Side
There is no question that higher interest rates increase the federal government's borrowing costs. With federal debt above $40 trillion, the government's interest expense is significant and deserves attention.
However, there is another side of that transaction that rarely receives as much attention: The government's interest expense is somebody else's interest income.

Treasury interest payments do not simply disappear. They flow to the individuals and institutions that own government debt, including individuals, mutual funds, banks, insurance companies, pension and retirement systems, and foreign investors.

For the first time in many years, retirees and conservative investors can earn meaningful income from high-quality fixed-income investments without assuming equity-like risk.

Social Security provides an interesting example. The Social Security trust funds hold trillions of dollars in special-issue Treasury securities. These are not ordinary marketable 30-year Treasury bonds, but they earn interest based on formulas tied to Treasury yields. Higher prevailing rates can therefore increase the interest income earned by the trust fund as securities mature and are reinvested.

There is even a subtle distributional element to this.

The federal income tax system is progressive, meaning higher-income households pay a disproportionate share of federal individual income taxes. Some government revenues ultimately service Treasury debt, while the resulting interest payments flow to bondholders and institutions such as pension and retirement funds.

I would not characterize this as a direct transfer of wealth from wealthy taxpayers to retirees because federal finances are far more complicated than that. But economically, there is a redistributive component that often gets ignored when the discussion focuses exclusively on the government's rising interest expense.

Higher government interest costs are a legitimate fiscal concern. But every dollar of interest expense also represents income received somewhere else in the financial system.

A Steeper Yield Curve Can Be Healthy
Another development I view positively is the steepening of the yield curve.



For much of the past several years, the yield curve was inverted, meaning short-term interest rates were higher than long-term rates. Historically, that has often been associated with restrictive monetary policy and increased recession risk.

A more normally shaped yield curve has longer-term rates above shorter-term rates. That makes economic sense as investors committing money for 20 or 30 years should generally receive more compensation than investors lending money for a few months.

A steeper curve can also improve the economics of traditional banking. Banks generally fund themselves at shorter maturities and make loans at longer maturities. A healthier spread between short- and long-term rates can encourage lending and improve the allocation of capital throughout the economy.

There is an important distinction between high interest rates caused by an economy that is breaking and higher long-term rates caused partly by stronger growth, heavy demand for capital, and investors requiring an appropriate return on their money.

I believe today's environment contains much more of the latter than many headlines suggest, although the government's fiscal trajectory remains a legitimate long-term concern.

Maybe the Bond Market Is Finally Working Again
This brings us to what I believe may be the most important part of the story.

For much of the period following the financial crisis, the Federal Reserve was an enormous participant in the bond market. Quantitative easing and near-zero interest rates intentionally pushed yields lower, encouraged borrowing, and pushed investors further out on the risk spectrum.

Those policies may have been necessary during periods of financial and economic crisis. But they also reduced the role that normal market forces played in determining the price of long-term capital. Today, the bond market is increasingly setting that price itself, and I believe that is ultimately healthy.

Thus, I have a relatively constructive interpretation. Despite concerns that rising long-term yields signal an approaching government debt crisis, I continue to expect the 10-year Treasury yield to remain in a 4% to 5% range through the end of 2027. That is an important distinction. A 10-year Treasury approaching 5% may create headwinds for stock valuations, but it is very different from a disorderly bond market or a loss of confidence in U.S. government debt.

The Treasury Department also took steps last week to improve liquidity in the long end of the market. Treasury Secretary Scott Bessent announced that Treasury would double the size of certain buyback operations involving securities with maturities between 10 and 30 years to $4 billion per operation.

Some headlines characterized this as an attempt to push long-term rates lower, but the program primarily purchases older, less-liquid Treasury securities and is designed to improve liquidity, free up dealer balance sheets, and help the Treasury market function more smoothly.

In other words, there is a difference between maintaining the plumbing of the Treasury market and trying to dictate the market price of long-term capital. The distinction matters.

Markets are supposed to allocate capital efficiently. Governments should have to compete for capital. Corporations should have to demonstrate that an investment is likely to generate a return greater than its financing cost. Investors who commit their money for 10, 20, or 30 years should be appropriately compensated for the risks they assume.

If the federal government wants to borrow trillions of dollars, the bond market should be able to demand a higher interest rate. If corporations believe investments in artificial intelligence, data centers, manufacturing, and energy infrastructure can generate extraordinary returns, they should be willing to compete for that same capital.

That competition is not a failure of the financial system, more that is the financial system working.

The result should be better price discovery and a more rational allocation of capital. A market-driven steepening of the yield curve may feel uncomfortable after nearly two decades of extraordinarily low interest rates, but uncomfortable does not necessarily mean unhealthy.

In many respects, we may simply be returning to something that looks much more historically normal.

What Does This Mean for Our Bullish Outlook?
Higher bond yields are one of the more meaningful risks to stocks right now. If the 10-year Treasury were to move materially above 5% and continue climbing because investors were losing confidence in inflation or U.S. fiscal policy, I would become more concerned. At some point, sufficiently high bond yields would pressure stock valuations, borrowing, investment, and economic activity.

But that is not my base case.

Our long-term bullish thesis remains centered on rising corporate earnings, productivity growth, artificial intelligence, automation, enormous capital investment, and the continued resilience of the U.S. economy. In fact, the demand for capital associated with the AI boom is contributing to some of today's competition for long-term capital.

That creates an interesting tension. The same investment boom that could increase productivity and corporate earnings over the next decade is competing for capital today and helping raise its price. That is not necessarily bearish.

If companies can borrow money at 5% or 6% and deploy that capital into projects capable of generating substantially higher returns, the investment still makes economic sense. The higher cost of money simply forces businesses to become more disciplined about where they allocate capital.

The same applies to government. Markets imposing a real cost on borrowing can eventually create pressure for greater fiscal discipline.

That is what functioning capital markets are supposed to do.

Final Thoughts
The rise in long-term bond yields deserves our attention, but I do not believe investors should automatically interpret it as evidence that something is fundamentally wrong with the economy. Some of the increase reflects legitimate concerns about federal deficits and the enormous amount of government debt that must be financed. Washington cannot continually increase borrowing without the market demanding appropriate compensation. But higher yields also coexist with a resilient economy, enormous private-sector investment, strong demand for capital, and attractive alternatives competing for investors' money. At the same time, higher government interest payments become income for bondholders, pension systems, retirees, and institutions such as the Social Security trust funds.

Perhaps the most important takeaway is that the bond market appears to be doing its job again. Capital has a price, borrowers have to compete for it, and investors are increasingly determining that price through normal market forces. That may create volatility for stocks from time to time, but over the long run, markets that efficiently allocate capital are a feature of a healthy capitalist economy, not a flaw. As long as corporate earnings continue to grow, businesses continue to invest, and the AI-driven productivity story continues to develop, I remain constructive on stocks. After nearly two decades of unusually cheap money, we may simply need to become comfortable again with a world in which capital is valuable, savers are rewarded, borrowers must justify their investments, and markets determine what money should cost.

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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