The single most important thing I learned in drivers' ed was that you could go seven mph over the speed limit without tripping a cop's radar gun.
Whether that was true, is still true, or was appropriate to share with a 15-year-old about to get behind the wheel of a 5,000-pound machine for the first time is beside the point. To this day, when I get on the interstate, I check the speed limit, add seven, and set the cruise. Old habits I guess.
Since April, you could say we've been driving the equivalent of 77 in a 70 in client portfolios. With help from our outsourced chief investment officers, BlackRock and 3Fourteen Research, we've been overweight stocks and underweight bonds with minimal cash. And it's worked: since coming out of the initial stages of the Iran War, U.S. stocks are up about 10% and international stocks about 9%. Just as important, the things we sold to fund that bet — bonds and gold — have been negative over the same stretch.
What's, um, driving it? Earnings. The S&P 500, as a group, is earning 50% more than it did at this time last year in the most recent earnings season. It's hard to understate how rare that is. We don't usually see numbers like that unless we're coming out of a recession. In fact, the last time we saw a number that good was 2021, coming out of Covid.
But with earnings season now in the rearview, macro data, not company fundamentals, are going to be in focus for the next three months. Here's a quick summary of what the market will be watching:
1. The Fed. Last week, new Fed Chair Kevin Warsh struck a hawkish tone in a speech at Jackson Hole, saying that the Fed has "work to do" to deal with what he sees as persistently elevated inflation. Futures markets interpreted that to mean raising short term interest rates, and immediately priced in a hike at the Fed's next meeting (September 15th). Whether we actually get one matters less than the fact that it's on the table at all. For context, we started the year with strategists penciling in three rate cuts for the year, and we're now debating a hike instead. That means that economic conditions, at the margins, aren't getting easier.
2. Interest rates. Longer-term rates are climbing, too. 30-year Treasuries are at levels not seen for two decades, and 10-year yields are creeping toward 5%. When 10-year Treasuries hit 4.5%, that has historically been a flashing yellow light, and we're at 4.75%. The higher this number goes, would-be equity investors are faced with a real alternative to staying in stocks. The recent move up in yields was enough to prompt Treasury Secretary Scott Bessent to announce a surprise buyback of long-dated bonds to keep a lid on rates — and this comes as government debt crossed the $40 trillion mark last month.
3. Iran. We're now in the seventh month of the war, with oil trading 50% above where it started the year. Even so, prices have stayed below $90 for much of the conflict — largely because both the U.S. and China have been drawing down strategic stockpiles, keeping a lid on the price. But that's not a permanent fix. The longer the conflict runs, the more fragile the oil market gets, and the sooner those stockpiles need refilling — which only adds upward pressure on the price of oil. Renewed attacks by both sides over the weekend suggest this isn't getting better anytime soon.
4. Midterms. Democrats are running much closer races than what was anticipated at the start of the year. According to Strategas' Dan Clifton, the House looks winnable: they need just a net 3 seats. The Senate is harder — a net 4 seats, but the Democrats are playing offense in red-leaning states like Texas, Iowa, and Ohio. Sixty days out, it looks like a toss up, and markets hate that kind of uncertainty.
As these storylines play out, we put a strong, fundamentals-driven earnings season in the rearview — and head into a seasonally weak stretch, in a volatile midterm election year.
So as of today, we're easing off the gas in client portfolios, paring back equity exposure closer to neutral.
To be clear: we're not bearish. The earnings outlook still looks strong heading into next year, and we're hoping for a chance to get more aggressive again later in the year. But for now, the risks are increasingly two-sided. Time to slow down.
Here's what you need to know.
Markets
2026 Year-to-Date Asset Class Returns
News & Notes
- Bonds: Treasury yields are acting as Wall Street’s new fear gauge, supplanting traditional risk measures like the muted Cboe Volatility Index. (Barron's)
- Interview with Schwab CEO Rick Wurster [Video]: Charles Schwab has grown from a small discount brokerage into one of the largest financial services firms in the world, overseeing $13 trillion in client assets. CEO Rick Wurster sits down to discuss his vision for the company. (BBG)
- Estate Planning: What the sale of the Los Angeles Lakers can teach business owners about trust & estate planning. (CNBC)
- Management: How much should you be investing in your company's growth? Most firms get capital allocation wrong. Here’s how to do it right. (HBR)
- Gold: How much is too much Gold for retirees? (Barron's)
- Spending: Nearly three-quarters of Americans say they feel bad about spending money on things that bring them joy, according to a new survey. (BBG)
- Travel & Spend:
36 Hours: Bozeman, Montana (NYT)
36 Hours: Chicago (NYT)
36 Hours: The Cotswalds, England (NYT)
(Pie)Chart of the Month
In midterm election years, markets have historically struggled from mid-August through October.
Firm News
Time for Fall Reviews!
Molly is in the process of reaching out to all clients to schedule Fall Reviews.
Our focus is Open Enrollment/Medicare, property & casualty insurance, and tax projections for 2026. We'll also do an update on client portfolios, review performance and address action items from past meetings.
Feel like you need help in any of these areas? Schedule a discovery call.
New Sponsorship!
When news of the Lakers selling for $12.5B hit the wires, I knew it was time for PieCapital to get in on the action. But to avoid top-ticking the market on a professional club, we opted for an "out of the money" call option on a highly regarded U7 recreational club. It's also all that we could afford (thanks Bob Iger).
As if on cue, the team responded with a win over a feisty U8 club last Saturday, instantly re-affirming our decision. Go Incredibles!
First Day of School!
Lily started 4th grade and Evie started 1st grade!
Cate started sixth grade, and Ben and Jack started 5th and 1st, respectively.
Can Anyone Get Me the Dewey Decimal Number for Books About Indy Cars?
Sarah & Ethan enjoyed their most anticipated DC events: the Library of Congress’ National Book Festival and the Freedom 250 IndyCar race. #CardCatalog
📖 Molly is reading One Dark Window by Rachel Gillig
🥊 Sarah just finished watching the entire Rocky franchise (6 movies!) & Creed trilogy on Netflix
💰 Will is reading Young Money by Jack Raines
Happy Labor Day!
