THE DEAN’S LIST: The Long Bond Ignored the Jobs Report

A weak jobs report landed Friday, and the long end of the bond market shrugged. The 10-year Treasury yield closed the week higher, not lower. Odds of an October Fed hike fell, but a hike did not leave the table. The S&P 500 slipped about 0.3% on the week and bounced hard on Friday. Our Hormuz call needs another update, and I explain why below. The Single-Digit Millionaire portfolio trailed the S&P 500 fund it holds, and the scorecard is at the bottom of this letter.

Dean’s note:
The September jobs report was soft. Employers added 29,000 jobs against forecasts clustered between 84,000 and 95,000. The Bureau of Labor Statistics cut July and August by a combined 60,000, and job gains averaged 45,000 a month over the prior 12 months. The unemployment rate edged up to 4.2% from 4.1%. Participation rose to 61.8% from 61.6%. Average hourly earnings rose 0.1% on the month and 3.0% on the year. That is a weak report, and it is weak in context too. It is also one preliminary print. Labor is a lagging indicator, so remember this is like reading last week’s newspaper. Stocks move long before these numbers confirm major inflection points in either direction.

The Fed did not meet this week, but expectations for the next meeting moved. On Tuesday, Vice Chair John Williams said, “With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information.” He added that one more increase may be appropriate late this year. After Friday’s report, CME FedWatch put the odds of a hold in October at 83.9%, up from 35.8% on September 25. The report reduced the case for immediate tightening, and inflation is still above target, so a weak jobs print does not make a cut inevitable. The next scheduled decision is October 28.

Yields did not follow the jobs report down for long. They dipped in the first hour, then climbed back and closed higher on the day. The dive below has the numbers. A long yield carries expected short rates, growth, inflation expectations, term premium, and Treasury supply all at once, and one session cannot pull those apart. We think the long end is pricing supply and inflation risk more than it is pricing the next Fed move. The bond market is still the adult in the room, and this week it did not flinch.

President Trump said Friday at a campaign rally that the Iran war will end “probably right after the midterms.” That is a campaign prediction, not a negotiated timetable, and he did not say whether he means a deal or a military end. It does make us less confident in the call we have held since Edition 34, a brokered agreement to reopen the strait before November 3. 

Stocks stayed calm through all of it. The S&P 500 fell Monday through Wednesday, gained Thursday and Friday, and finished the week down about 0.3%. The Nasdaq Composite gained about 0.5% and small caps slipped about 0.2%. Participation narrowed too. Schwab reported that the share of S&P 500 members above their 200-day average fell to 44.11% from 47.80% on the week, with large and mega-cap stocks outperforming. That is consistent with an index leaning on its biggest names.

One more thing before the dives. August core PCE inflation was 3.0% from a year earlier, the same as July on the updated series. The monthly pace picked up to 0.2% from 0.1%. So this report does not show fresh cooling. The fourth dive explains the revision and what it means for our back-half call.

Five sessions, no Fed meeting, and a long bond that went its own way.

Monday (September 28): Stocks fell as yields climbed. The S&P 500 dropped 0.77% to 7,683.93 and the Nasdaq Composite fell 0.92% to 26,820.38. The 10-year closed at 5.24% and the 30-year at 5.56%. It was the first full session since Trump rejected Iran’s proposal, and Saudi Arabia said it had intercepted another Houthi missile over the weekend.

Tuesday (September 29): Fed Vice Chair John Williams told an audience at the University at Buffalo that he saw no need for urgency on another hike. Job openings fell to 7.079 million against a 7.225 million forecast. The S&P 500 slipped to 7,670.84.

Wednesday (September 30): The last day of the quarter brought the August PCE report, with core up 0.2% on the month against a 0.3% forecast. The S&P 500 fell 0.25% to 7,651.54, its low for the session. The 10-year closed at 5.29% and the 30-year at 5.64%, the week's high. ADP reported 90,000 private-sector jobs against a 70,000 forecast.

Thursday (October 1): Stocks snapped the three-day losing streak, with the S&P 500 up 0.19% to 7,666.45. The ISM manufacturing index came in at 54.5 against a 55.0 forecast, and weekly jobless claims fell to 197,000. WTI jumped $4.28 to $92.87 on Chinese fuel export suspensions and Middle East tension. Nike reported after the close.

Friday (October 2): The jobs report missed badly. The S&P 500 rose 0.73% to 7,722.72, the Russell 2000 rose 0.94%, and Tesla jumped 5.7% after third-quarter deliveries topped forecasts. Nike fell the day after its report. WTI dropped 1.9% as G7 leaders announced a coordinated release from emergency reserves.

Monday (October 5): The ISM services index is due at 10 am ET, and the September Fed minutes arrive Wednesday, October 7, at 2 pm ET. Over the weekend the Houthis claimed missile and drone strikes on an Aramco facility south of Riyadh, and witnesses reported flames and smoke there. Iraq’s state tanker company also moved 2 million barrels of crude through the strait.

The 10-year yield rose from 5.17% on September 25 to 5.28% on Friday. The 30-year rose from 5.49% to 5.63%, after touching 5.64% on Wednesday. The 2-year rose from 4.81% to 4.83%. The gap between the 10-year and the 2-year widened to 45 basis points from 36.

Friday made the point. The 10-year dipped to about 5.18% in morning trading after the jobs report, then closed higher, up from 5.24% on Thursday. The 2-year closed higher too, at 4.83% against 4.78%. The Fed has two jobs, stable prices and maximum employment, and it measures prices with PCE. In its September projections, the committee put median PCE inflation at 3.7% and core at 3.4% for 2026, and not back near 2% until 2028. Inflation staying above target is one reason, not the only one, that bad jobs news did not start a bond rally.

Dean’s note:
A long yield carries expected short rates, growth, inflation expectations, term premium, and Treasury supply all mixed together. One week cannot separate them. We think the long end is demanding more for lending to a government that keeps borrowing, and for the risk that inflation stays above target longer than the Fed projects.

A weak labor print fixes neither one. I have watched bond markets ignore good news for months and bad news for weeks. They are not wrong just because they are inconvenient. Looking at it on a daily basis can make you myopic, so be careful.

Health care added 17,000 jobs, construction 11,000, and manufacturing 9,000. Financial activities lost 7,000. The BLS revised July down by 31,000 and August down by 29,000. Unemployment edged up to 4.2% from 4.1%, and participation rose to 61.8% from 61.6%. Workers jobless for 27 weeks or more numbered 1.9 million, or 27.1% of the unemployed.

Wage growth was 3.0% on the year. Markets read the package as a reason to price a lower chance of an October hike. Williams already said another move late this year may be appropriate, and one jobs report does not erase that. The report adds weight to the employment side of the Fed’s mandate. 

Dean’s note:
Two weeks ago I told you a hot business survey cut against our AI view. This report cuts the other way, so you get both halves. Our hypothesis is that AI can lift corporate profits without adding jobs. Weak aggregate hiring is consistent with that. It cannot identify AI as the cause, because the BLS assigns no cause and plenty of things slow hiring.

Our other view is that job growth can pop back up. That one has less support today. We are keeping it, since this series is volatile and gets revised. If the next two reports also land well under 50,000, we will say the bounce is not coming. One more wrinkle. The household survey showed the labor force rising by 485,000, so I would not lean on a shrinking-labor-supply story to explain slow hiring. That survey is noisier than payrolls, and it is one month.

On Friday at a campaign rally in Mobile, Alabama, President Trump said the Iran war is “going to end very soon and probably right after the midterms.” He added that oil prices would fall once the fighting stops. Iran’s public positions are conditional. Foreign Minister Abbas Araghchi’s proposal described reopening the strait within seven days if conditions were met. Parliament Speaker Mohammad Baqer Qalibaf said Sunday that the strait will not reopen “until our seven conditions” are met. Those two statements do not contradict each other. The open question is whether the sides can agree on the terms and on who moves first, and reporting on the Qatar-mediated talks describes the gap as sequencing.

The ships tell a mixed story. Iraq’s state tanker company moved 2 million barrels of crude through the strait in what it called its first such operation in decades. Fox News reported two tankers struck by unidentified projectiles near the strait on Friday. The Houthis claimed strikes on an Aramco facility south of Riyadh, and witnesses reported flames and smoke there. Who caused the fire is the Houthis’ claim, not a confirmed finding. WTI settled at $91.11 for the November contract. Brent settled at $102.25 after rolling to the next contract. The G7, coordinating through the IEA, announced a release of up to 100 million barrels of diesel and crude over four months. EnergyNow tied Friday's WTI drop to that news, and I would call it one factor among several.

Dean’s note:
Here is the update, and here is what the call covers. Our Hormuz call is a brokered agreement to reopen the strait, announced before the November 3 midterms. A ceasefire, a reopening, and a broader settlement could land on different dates, and we are not forecasting the last one. Trump’s comments make us less confident in that call. It is now less likely than not.

Two caveats matter. He did not say whether he meant a deal or a military end, and talks still run through Qatar. I have watched plenty of deadlines slide past plenty of headlines. Watch the ships, not the speeches. Transit counts and war-risk insurance premiums are the data worth your time.

August core PCE inflation, which excludes food and energy, was 3.0% from a year earlier, according to the Bureau of Economic Analysis. July was also 3.0% on the updated series, so the annual rate was unchanged. Monthly core inflation rose to 0.2% from 0.1%, against a 0.3% forecast. Headline PCE rose 0.3% on the month and 3.4% on the year. The report carried the BEA’s annual update, which revised how it measures prices for portfolio management fees, legal services, and software, with revisions back to January 2021.

BEA says the changes aim to cut noise and match prices to the services people consume. I cannot tell you how much of August's result came from those three changes rather than other revisions. Some early coverage compared August with July's pre-revision 3.3% and called it cooling. On the updated series, it was flat. The ISM manufacturing prices-paid index was 77.9, up from 71.1 in August, per recaps of the release. That is a survey index where readings above 50 mean more firms report higher input prices. It is not a 77.9% price increase, and it covers factory input costs, not consumer inflation. September CPI arrives Wednesday, October 14. The University of Michigan preliminary October sentiment survey arrives Friday, October 9.

Dean’s note:
Here is the honest version. This report does not show fresh cooling. Annual core inflation was flat at 3.0%, and the monthly pace ticked up. The BEA’s measurement revisions make old comparisons unreliable, and I cannot split out how much they moved August. Our view is that inflation cools in the back half of the year. Nothing here proves that, and nothing here kills it. Factory input pressures are rising, which cuts against it. September CPI on October 14 is the test we care about.

Stay invested. Stay selective. Watch the 30-year, not the headline.

A weak jobs report, a long bond that would not play along, and a president who moved the Iran clock past Election Day. Here is what I am carrying forward.

•  Watch the 30-year. It topped last week's 5.49% mark and kept going. Our read is supply and inflation risk more than the next Fed move. That is a view, not a measurement of the bond market's mind.

•  October 28 is live, with less heat. A hike got less likely this week. That is not a cut. The September Fed minutes arrive Wednesday, October 7, at 2 pm ET and will show what officials were worried about.

•  Hormuz: our call is a brokered agreement to reopen the strait before November 3. It is now less likely than not. That is our judgment, and we have told you what evidence would change it.

•  Hiring was weak against a 12-month average of 45,000. Our view that job growth can pop back up has less support, and we named the evidence that would end it. We are watching the next two reports closely.

•  Core PCE was flat at 3.0% on the updated series. September CPI on Wednesday, October 14, is the next real test of our back-half call on inflation.

•  Where your plan, your cash flow, and your emergency reserves support it, a choppy week is not on its own a reason to stop contributing to your 401(k). The 2026 elective deferral limit is $24,500. A super catch-up of $11,250 takes the total to $35,750, but only if you turn 60, 61, 62, or 63 during 2026 and only if your plan permits catch-up contributions. If your 2025 Social Security wages from that employer topped $150,000, your catch-up generally has to go in as Roth. If your plan does not offer a Roth option, ask your administrator whether you can make catch-up contributions at all. Ask your plan administrator, not me.

The VIX ended at 15.31. It is the market’s expected 30-day volatility for the S&P 500, implied by option prices and expressed as an annual rate, nothing wider.

Returns across markets remain uneven. Through Friday this year, per the benchmark table on the portfolio dashboard, emerging markets are up about 24.0% and the Russell 2000 about 14.4%, ahead of the S&P 500’s 12.8%. Equal-weight S&P 500 (9.5%) and developed foreign stocks (8.3%) trail it, and the Nasdaq 100 is up 22.0%. We hold a mix to manage concentration risk. That mix can beat or trail the S&P 500 over any given stretch.

- Dean

P.S. The number I keep coming back to is 45,000. Job gains averaged 45,000 a month over the prior 12 months. Friday's 29,000 sounds like a collapse until you set it next to that. Unemployment has stayed between 4.1% and 4.3% since March, so the labor market looks slow, with no clear sign of a break. Slow hiring and a steady jobless rate are reassuring in some ways. They do not prove cracks are absent. Pay adds a wrinkle. Average hourly earnings rose 3.0% in the year to September, and August PCE inflation ran 3.4%. The periods differ, so treat that as a hint of pressure on purchasing power, not a real-wage verdict.

And one more thought. The oil story is shifting from crude to refined products. The release announced Friday covers diesel and crude, and EnergyNow said the squeeze comes from refinery disruptions in the Middle East and Russia more than from crude supply. Crude can ease while diesel stays stubborn. Diesel moves freight, and freight shows up in what you pay for a lot of things. That is an inference, and I would not tie it to any single data point. But when you read about oil falling, ask which barrel. Crude and the pump do not always move together.

👉 On the portfolio dashboard, the portfolio fell 0.61% from September 25 through October 2, against a 0.46% decline for VOO, the S&P 500 fund that makes up half of it. The index itself fell about 0.27%, and a fund's return can differ from its index. Weighted by size, the biggest drags were VOO, gold, and developed foreign stocks. Gold fell 3.36% and developed foreign stocks fell 1.47%. Cash and bitcoin rose 0.08% and 0.34%, too little to offset them. For the year the portfolio is up 10.07% against 12.82% for VOO, a gap of 2.75 points. Cash, gold, bitcoin, ethereum, equal weight, and developed foreign stocks all trail VOO this year. Diversification can help or hurt over any stretch, and a mix does not guarantee a better result. Gold can fall hard. Crypto can halve. Cash costs you when stocks run. Small caps and foreign stocks can lag for years. See every holding, every weight, and the reasoning behind them at My Single-Digit Millionaire portfolio.

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.