Closing Thoughts for the Week

Inflation is proving to be a problem that’s not going away anytime soon. Treasuries finally seem to have unwound most of investors’ over-dovishness from earlier this year and now appear to be in a more neutral position looking forward. This week proved that volatility can and will still rear its ugly head from time to time if investors need an occasional jolt of reality.

While investors seem convinced that we’re still on track for the soft or no landing outcome, they are also continuing to dial back their most optimistic projections. We likely see at least a modest Treasury bill rally ahead of a cut. That hasn’t happened yet. Investors want quality stories, a notion that is confirmed by the fact that quality is one of the market’s best-performing factors over the past year.

If you’re looking at the total labor market picture beyond just the non-farm payroll number, I think we’re actually seeing the jobs market starting to crack. Given the current labor market trends, we could see a significant breakdown yet this year and the markets still aren’t recognizing this as a downside risk as much as they should.