Yields Spike, Oil Rises, and the Fed Stays Hawkish

Grant Calloway

The ten year Treasury yield just touched five point twelve percent, a nineteen year high, and if that doesn't wake you up faster than floor coffee, I don't know what will. According to market data from Charles Schwab, fresh jobless claims dropped to one hundred ninety seven thousand, showing a labor market that just won't quit. Couple that with Fed Chief John Williams taking a hawkish tone, and the CME FedWatch tool now puts the odds of another rate hike next month at seventy one percent. That is a heavy hammer hanging over equity multiples.

Grant Calloway

Looking across the tape, the S and P 500 index is hovering around seven thousand seven hundred six, while West Texas Intermediate crude is marching up to ninety three dollars and eighty two cents a barrel. Meanwhile, Bitcoin is holding ground near eighty three thousand four hundred fifty five dollars, sitting just above that crucial ETP investor cost basis around eighty three thousand.

Grant Calloway

Individual single stocks are taking some real heat this morning. Oracle fell four percent following reports that it cited force majeure to potentially delay payments on a data center project. Darden Restaurants dropped three point six percent despite hitting near term earnings targets, and McDonald's gave back almost five percent as traders digested the spending needed for their long term margin goals. On the green side of the ledger, cybersecurity bucked the trend, with Palo Alto Networks popping five percent.

Grant Calloway

Back when I traded on the floor, we used to say this tape is tighter than a drum when yields surge like this. It puts immediate pressure on corporate borrowing. Before we break down the broader bull versus bear case, a quick word for our sponsor. Today's episode is brought to you by Jellypod. If you want custom audio feeds tailored directly to your investment workflow, head over to jellypod dot com to get started.

Grant Calloway

Now, let's weigh the battle lines out here. On the bull side, you have got a US consumer that simply refuses to fold, keeping the broader S and P 500 tucked inside a range between seven thousand six hundred and seven thousand eight hundred. Plus, Treasury Secretary Scott Bessent noted a two month extension on the US China trade truce, keeping tariffs low and rare earths flowing, which gives a nice tailwind to names like Archer Daniels Midland and Cheniere Energy.

Grant Calloway

But the bear case is loud and it is coming straight from the bond desk. Crude oil sitting above ninety three dollars means input costs stay sticky, threatening operating margins across the board. When the ten year yield stays above five percent, capital costs for high growth tech and consumer discretionary names go up fast. You cannot ignore cost of capital when it hits a two decade high.

Grant Calloway

Looking at what is on deck today, we have August Durable Goods Orders arriving at eight thirty AM Eastern, followed by the final University of Michigan Consumer Sentiment reading at ten AM. Plus, keep an eye out early this afternoon for the results of the seven year Treasury note auction to see if fixed income buyers finally show up.

Grant Calloway

I will leave you with an old floor rule I learned thirty years ago: never fight the bond market when it is shouting at you. Keep your risk tight as we head toward next week's PCE inflation data. As a quick reminder, this podcast is for general informational and educational purposes only and does not constitute individual investment advice. All right, that is the tape for today. Talk to you soon.