THE DEAN’S LIST: The Party The Bond Market Skipped.

Last week, the whole worry was a hawkish Fed and a bond market screaming about inflation. Then Friday's jobs report landed, the economy actually lost 23,000 jobs, and the story flipped overnight from too hot to too cold. Stocks threw a party and closed at record highs, betting that a weak job market isn’t the death knell for corporate profits and the Fed could be done raising rates. Before you join the celebration, look at how the Single-Digit Millionaire portfolio is built to hold steady whether the next surprise turns out to be more inflation or a genuine slowdown.

Dean’s note:
Rewind exactly one week, and the fear was the opposite of what it is today. The Fed had just held rates, three of its own regional presidents had broken ranks and voted for a rate hike, and the market's biggest worry was stagflation. The 30-year Treasury yield had just punched up to its highest level since 2007, the bond market’s way of saying it did not believe inflation was beaten.

Then Friday morning arrived and turned the whole thing on its head. The July jobs report did not just come in soft. It came in negative. The economy lost 23,000 jobs, when the crowd was looking for a gain of more than 80,000. The prior two months got revised down by a combined 103,000. There were some education-related anomalies, but it’s getting harder to say hiring did not slow this summer.

So, how did the stock market take the news that the job market is growing below replacement level? It threw a party. The S&P 500 closed at a record, above 7,700 for the first time in history. The Nasdaq jumped to a record of its own, capping its best week since April. The chips ripped about 7%. If you only watched the stock screen, you would have thought the jobs report was a blowout, not a bust.

Here is the strange arithmetic behind that. The odds of a September hike collapsed from roughly two-thirds to about 40% in a single morning. We won’t argue that this is not great news for the worker on Main Street. But the market is wise and well-read in history. Jobless recoveries and stagnant quarters exist throughout expansions in the 1990s, 2000s, and 2010s. AI is the new story here. And it can buoy corporate profits without additional jobs in a way that was unimaginable 20 or 30 years ago. But this has far-reaching social and political implications, as you can imagine. It’s a developing story and way too early to set opinions and forecasts in stone.

While the stock market was busy celebrating, the long bond refused to join in. An ugly jobs report is normally rocket fuel for long-term bonds, because a slowing economy is supposed to mean less inflation down the road. And still, the 30-year yield came down just two basis points. It is sitting right there at 5.19%, a hair off its highest level since 2007. The short end, the part the Fed controls, fell as traders priced out the hike. The long end, the part the Fed does not control, barely moved. 

So here is where I land. The market got the easy-money story it wanted, and it ran that story straight to record highs, and I am not going to stand in front of a tape making new highs and tell you it is wrong. The bond market's long end quietly declined the invitation. Stocks are betting AI and the Fed are enough to keep the economy from cooling. The 30-year yield is betting the inflation fight is not over. Stay invested, because the trend is up, and fighting it has been a losing game all year. And watch the 30-year yield, because it skipped this party for a reason. We still think inflation will cool in the back half of the year, and job growth can pop back up. But it isn’t necessarily required to continue seeing new highs.

A few days ago, the hottest trade on earth finally cracked. Here is how it played out.

A week later, the jobs report flipped the whole story, and the market threw a party anyway. Here is how it played out.

Monday (August 3): The week opened on a firm note as oil eased on hopes for a deal to reopen the Strait of Hormuz. A heavy slate of earnings was on deck, and every trader in the market already had one eye on Friday's jobs report.

Tuesday (August 4): A quiet drift. Stocks held near their highs while investors waited on the data, with the Treasury Secretary floating that a Hormuz deal could come within days.

Wednesday (August 5): A tug of war under the surface. Fed official Neel Kashkari said it was time to raise rates, a reminder that the hawks had not gone anywhere, even as a soft private payrolls reading hinted the labor market was already cooling.

Thursday (August 6): The market built momentum right into the report. The S&P held above 7,700, and the Nasdaq pushed toward a record as chip stocks kept climbing on hopes of cheaper money.

Friday (August 7): The shock. The July jobs report showed the economy lost 23,000 jobs, against forecasts for a gain of more than 80,000, with the prior two months revised down by another 103,000. Stocks did not flinch. They soared. The S&P closed at a record 7,758, the Nasdaq jumped, and the odds of a September hike collapsed.

Monday (August 10): Futures are steady after the record week. Oil is climbing again as the promised Hormuz deal keeps slipping, with Iran now saying it is not in direct talks at all. A fresh inflation report is due this week, the next test of whether the Fed's fight is really cooling or just paused.

The number was ugly, and there is no polite way to dress it up. The economy lost 23,000 jobs in July, while economists expected a gain of more than 80,000. And it got worse the deeper you read. The prior two months were revised down by a combined 103,000, with May cut by 66,000 and June lowered by 37,000. 

And the stock market threw a party. The S&P closed at a record above 7,700, the Nasdaq jumped to a record of its own, and it was the best week for stocks since April. Why on earth celebrate a shrinking job market? Because markets remember history better than people. Weaker periods may be followed by stronger periods. And the Fed can stop worrying about raising rates, and might even move to cut them. The odds of a September hike fell from roughly two-thirds to about 40% in a single morning.

Dean’s note:
This is the strangest reflex in all of investing, and I have watched it play out more times than I can count. A genuinely bad economic number lands, and stocks rise. I want you to hold two thoughts at the same time. A market that cheers job losses may be betting that data is volatile during expansions and the Fed will always come to the rescue.

That bet pays right up until it does not. A labor market that keeps shrinking usually stops being a rate-cut story and becomes an earnings story. Is AI enough to stop it this time? Will consumer spending decline even if corporate profits hit new records while jobs shrink? These are the questions we will all be answering in the last few years of this decade.

Here is the number that should have moved the most on Friday and barely moved at all—the 30-year Treasury yield. A weak jobs report is exactly the kind of news that normally sends long-term yields tumbling, because a slowing economy is supposed to mean cooler inflation down the road. This time, the 30-year slipped a total of two basis points, and it is still parked at 5.19%, a hair off its highest level since 2007.

The short end told a completely different story. The two-year yield, the one that tracks what the Fed is likely to do next, fell more meaningfully as traders wiped a September hike off the board. So the curve did something worth staring at. The part that the Fed controls came down. The part that the Fed does not control barely budged—two ends of the same bond market, two very different verdicts.

Dean’s note:
I told you last week that the bond market is the adult in the room, and this week it proved it again by refusing to join the celebration. Think hard about what the long end is saying here.

A weak jobs report should be a gift to 30-year bonds, and still, the 30-year barely came down. That tells you long-term lenders are worried about something a single soft jobs print does not fix. Inflation has not fully gone away. Government deficits that keep piling up. An oil market that is still one bad headline from a spike. The stock market heard a rate cut and threw a party. The bond market heard the same words and stayed home. When those two disagree this loudly, I lean toward the one that has been right more often, and over the years, that has been the quiet one in the bond pit, not the loud one on the trading floor.

Rewind just over a week. The Fed had held rates; three of its own presidents had dissented in favor of a hike, and the whole conversation was about an economy expanding at a solid pace. The 30-year yield had just hit its highest since 2007 on that exact fear. The hawks were in charge of the story.

Then one data point flipped the entire narrative. The economy lost jobs, and overnight, the fear was no longer that it was expanding but that it was cooling too fast. The same hawks who wanted a hike a week ago suddenly had a labor market falling out from under their argument. The story did not drift to the other side. It sprinted.

Dean’s note:
This is why I keep begging you not to trade the story of the week. Two weeks ago, the story was inflation and hikes. This week, the story is slowed down and cut. The economy did not actually transform itself in seven days. One noisy number landed, the narrative bolted to the opposite end of the field, and a lot of the market bolted right along with it. The truth is almost always sitting somewhere in the messy middle, and it moves a great deal more slowly than the headlines written about it.

The people who get whipsawed are the ones who rebuild their whole portfolio around each Friday's data drop. The people who do just fine are the ones who have a plan that does not depend on whether this month's story is too hot or too cold. Stay balanced, and let the narrative run laps around the field without you chasing it.

The other big story of the week featured a familiar face—the semiconductors. The same group that fell into a bear market only a few weeks ago surged about 7% for the week, dragging the whole market to record highs. A bet on rate cuts is rocket fuel for the most growth-heavy corner of the market, and the chips are about as growth-heavy as it gets.

Stand back and look at the round trip. This is the group that doubled, then corrected 20% on a China scare, then bounced, then ripped to fresh highs, all inside a single summer. Last week, it added another chapter, riding both the blowout cloud numbers from Microsoft and Amazon and the new hope that cheaper money is on the way.

Dean’s note:
I have said all summer that a group that swings this hard in both directions is telling you exactly how crowded and emotional it has become. The chips fell 20% in July on a scare out of China, then ripped right back the moment the earnings and the rate picture turned in their favor. That is not the behavior of a calm, cheap, boring trade.

It is the behavior of the most loved and most violent corner of the whole market. I am not telling you to avoid it. The demand for these chips is real, and last week's cloud numbers proved it once again. You should respect how hard it swings, and size your piece of it so that a 20% move in a single week does not decide your whole year. Own the winners. Just keep your seatbelt buckled while you do.

Oil spent the week doing what it has done all summer, hanging on the next headline out of the Strait of Hormuz. Washington kept promising that a deal to reopen the strait was close. The Treasury Secretary said it could come within days. The President and his Secretary of State both said an agreement was near. The words could not have been more encouraging.

The deal did not arrive. By this morning, Iran's own foreign minister was saying Tehran is not even in direct talks, and oil was climbing again on the doubt. Crude sits near $78 for US oil and $84 for Brent, well off its late-July highs but still hostage to one narrow waterway and the mood of the people fighting over it.

Dean’s note:
This is the same lesson I have been hammering for two months, and it keeps proving itself right. Watch the ships, not the statements. The statements this week said a deal was imminent, close, days away. The ships are still not moving freely, and the foreign minister on the other side of the table says that no direct talks are taking place. When the words and the tankers disagree, believe the tankers every time.

For now, oil has come down from its highs, which is a genuine relief for inflation and a quiet gift to a Fed that would love some help. But nothing about that narrow strait is actually settled, and it would not take much of a headline to send crude right back toward triple digits. We do not confuse a promised deal for a delivered one, but our plan for the near-term is built around a brokered solution we believe must and will be delivered before November.

Stay invested. Stay selective. And when stocks and the long bond disagree this loudly, listen to the bond.

A week the economy lost jobs, the market threw a party, and the long bond quietly refused to join in. Here is what I am holding onto.

•     The market cheered a bad number, and I understand exactly why. A weak jobs report makes a Fed rate cut more likely, and cheaper money lifts stocks. The party is also based in a historical understanding that jobs can be volatile during expansions. 

•     The long bond skipped the celebration. The 30-year yield barely moved on a jobs report that should have pulled it down hard, and it remains near its highest level since 2007. That is the market telling you inflation and deficits are not solved, no matter how green the stock screen looks.

•     The story flipped from too hot to too cold in a single Friday. Do not rebuild your whole plan around one number. The economy did not transform in a week, even if the narrative sprinted across the field.

•     The chips led the charge, up about 7% on the week. The demand is real, but this is the most volatile corner of the market, down 20% one month and ripping records the next. Own it, size it right, and keep your seatbelt on.

•     Oil eased on a Hormuz deal that keeps being promised and never delivered. Cheaper oil helps inflation and helps the Fed. Just do not price in a deal that has not actually arrived. Watch the ships, not the statements.

•     The Fed picture is genuinely split. A week ago, three presidents wanted a hike. This week, a weak jobs report has the market betting on cuts. A committee this divided, reading data this noisy, is not one to try to front-run.

•     Keep contributing to your 401(k). The limit is 24,500 dollars, and if you are 60 to 63, you get a super catch-up to 35,750. A week the market rips to records is a fine time to remember that your automatic contribution has been quietly buying the whole way up, without you having to time a single headline.

Here is where I land. The market got exactly the story it wanted, a weak jobs report that points toward easier money, and it ran that story straight to record highs. That is real, and I am not going to argue with a tape making new highs. But the most important thing that happened last week was not the record. It was the long bond refusing to follow. Stocks are betting on the Fed and a resilient economy full of AI-driven profits. The 30-year yield is betting the inflation fight is not over. Stay invested, because the trend is up and the records are real. Watch the yield curve as closely as you watch the next record close, because when the party and the bond market disagree this loudly, the bond market is usually the one worth listening to.

- Dean

P.S. The number that sticks with me this week is negative 23,000. That is how many jobs the economy lost in July, when it was supposed to add more than 80,000. Sit with the size of that miss for a second. And then sit with what the market did in response. It closed at an all-time high. A shrinking job market, higher long-term rates and a record stock market, in the very same five days. When you see those anomalies holding hands, you are reminded of the market’s role as a discounting mechanism. Government reports are backwards looking data. The market itself will help us understand if labor and inflation trends we saw the past few months are sticky or just a blip as it looks 12-18 months ahead.

And one more thought. The next test is already on the calendar. A fresh inflation report lands this week, and it matters more than usual because of the split I keep describing. If inflation comes in cool, it hands the doves their case, strengthens the rate-cut bet, and the party likely rolls on. If it comes in hot, it hands the three dissenting hawks their case, and that stubborn 30-year yield suddenly looks like the smart money instead of the worrywart. One number will go a long way toward telling you which side of last week's argument was right. Layer on an oil market still waiting on a Hormuz deal that keeps not arriving, and you have a week that could either confirm the record run or puncture it. I am not going to guess which way it breaks. I am going to watch the inflation number and the 30-year yield together, and let them tell me which story is the real one.

👉 What if the smartest way to handle a week like this one, where the economy loses jobs, and the market hits a record on the very same morning, is not to guess whether the Fed cuts or the bond market wins, but to own a plan that holds up either way? My Single-Digit Millionaire portfolio blends stocks, cash, gold, and a little bitcoin, so a surprise jobs number or a stubborn bond yield does not get to decide your whole year.

This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Consult with a qualified financial advisor before making any investment decisions.