THE DEAN’S LIST: The Bond Market Calls the Bluff

A hawkish Fed on Wednesday. A peace ceremony that fell apart over the weekend. The biggest IPO in history is dropping 20 percent in a few days. And the market still closed the week green. If you are dizzy, you are paying attention. Before you decide the market is either bulletproof or doomed, pull up the Single-Digit Millionaire portfolio and look at how it is balanced across stocks, cash, gold, and a little crypto. A portfolio built for both directions does not flinch at a week like this. It just keeps working.

Dean’s note:
Two weeks ago, oil was spiking toward 100 dollars, and the market was falling apart. This past week, the Federal Reserve told us it might raise interest rates, the biggest US-Iran peace ceremony fell apart at the last minute, and the hottest IPO in history dropped 20 percent in a few days. And after all of that, the market still finished the week green. Let me untangle it for you.

Start with the Fed, because it moved everything. On Wednesday, in Kevin Warsh's first meeting as chair, the Fed held rates steady, exactly as expected. But its fresh projections told a more hawkish story. Where the Fed had been leaning toward cutting rates, it now penciled in a possible hike later this year. Nine of the eighteen officials see at least one increase. Stocks dropped hard. It was the worst Fed day for the S&P under a new chairman since 1994.

Here is my problem with the Fed's new worry. The inflation that it is suddenly fighting was, in large part, an oil story. A couple of weeks ago, a barrel of oil was near $97, and gasoline had jumped 7% in a month. That is what pushed inflation to a three-year high. And that oil price just collapsed. So the Fed may be tightening into a problem that is already solving itself. It is staring at last month’s inflation while the cause of it falls apart on the screen in front of them.

Do not take my word for it. Take the bond market's. The same week the Fed turned hawkish, the 30-year Treasury yield fell to a three-month low. The short end of the bond market, which listens to the Fed, went up. The long end, which looks years ahead, went down. The yield curve flattened, which is bad news for financials. The next Fed meeting is in 30 days.  Warsh has some time to get the band together and create a more cohesive narrative around what lies ahead. We haven’t heard a peep out of Trump about this. He can’t be happy. Either he is so busy with Iran and the UFC that he isn’t paying attention, or, more likely, he is being telegraphed a Fed playbook further in advance than we realize as the general public.

Then there is the part of the week that proved a point I have been making for a month. Over the weekend, the formal US-Iran signing ceremony in Switzerland was abruptly canceled after a flare-up in Lebanon. The statement, the photo-op, the handshake, all fell apart. And yet oil barely moved, holding near 80, because the ships kept sailing regardless. Saudi supertankers that had sat idle for months sailed out of the Gulf. The cargo does not care about the ceremony. Watch ships, not statements.

So here is where I land. The market just absorbed a hawkish Fed, a canceled peace ceremony, and a 20 percent drop in the biggest IPO in history, and still closed higher. That is not a fragile market. It’s a resilient one, climbing a wall of worry one brick at a time. Stay invested, because the trend and the falling oil both point up. Stay selective, because the gains are selective and the headlines can still turn. And when the Fed and the bond market disagree, listen to the bond market.

A week with a record, a hawkish surprise, and a peace deal that wobbled. Here is how it played out.

Monday (June 15): Stocks rallied as the weekend US-Iran peace deal landed. Oil cratered nearly 5%. For a day, the long-running war premium looked like it was finally draining away, and the watch-ships call looked vindicated.

Tuesday (June 16): Tech wobbled ahead of the Fed, but the overall market went higher. SpaceX briefly passed Amazon, and for a moment even Microsoft, to become the fourth-most-valuable company. Sprinklings of Euphoria were definitely in the air.

Wednesday (June 17): The Fed held rates in Warsh's first meeting, but its new projections leaned toward a rate hike later this year. The chairman didn’t say a peep to dissuade us from believing this could happen. It was the worst Fed day for the S&P under a new chair since 1994. Yields jumped.

Thursday (June 18): A rebound. Small caps and chips led, with Intel jumping on a US manufacturing deal with Apple. The US formally ended its naval blockade, the first tankers moved through the Strait of Hormuz, and oil fell again. The market clawed back most of the Fed-day losses.

Friday (June 19): Markets closed for Juneteenth. Behind the scenes, the formal US-Iran signing ceremony in Switzerland was abruptly postponed after a flare-up in Lebanon. But the ships kept moving. Saudi supertankers that had sat idle for months sailed out of the Gulf, and oil held near $80.

Monday (June 22): As I write, the market reopens after the long weekend. Oil ticked up on the canceled ceremony but is now falling again. The tankers are still moving, and the war premium is mostly gone. The week ahead brings earnings from Micron and FedEx, and at the end of the month, the inflation reading the Fed cares about most.

The Federal Reserve did exactly what everyone expected on Wednesday. It held interest rates steady in Kevin Warsh's first meeting as chair. The surprise was not the decision. It was the forecast.

In its fresh projections, the Fed shifted from leaning toward cutting rates to penciling in a possible hike later this year. Nine of the eighteen officials now see at least one increase in 2026. The post-meeting statement was stripped down to 130 words, dropped any mention of an easing bias, and vowed to deliver price stability. Warsh, a longtime critic of the Fed talking too much, declined to even submit his own rate forecast. The message was clear. This is a more hawkish Fed, and stocks fell hard on the news.

Dean’s note:
I respect the Fed's job, but I think they are fighting last month's war. The inflation that has them spooked was mostly an oil story, and that oil is collapsing as I write this. They could tighten into a problem that is already solving itself. Now, I could be wrong, and that is exactly why we hold some cash and stay balanced. But do not panic over a hawkish forecast built on a barrel of oil that is already falling.

I trust Warsh is no dummy. And Trump’s lip have been sealed even as the new chair does exactly the opposite of what the President seemingly hired him to do. There is more chess going on behind the scenes than the checkers you watch on your screen. Perhaps he’s buying time for persuasion or helping opponents save face. We don’t think he’s hell-bent on removing a still imaginary punch bowl from the stock market party with mid-term elections looming. 

Here is the most important thing that happened last week, and almost nobody is talking about it. The Federal Reserve turned hawkish, and the bond market politely disagreed.

When the Fed signaled a possible rate hike, the 2-year Treasury yield, which tracks the Fed closely, jumped toward its year-high. Makes sense. But the 30-year Treasury yield, which looks a decade or more into the future, fell to a three-month low.

Long-term yields drop when the market expects inflation to cool, not climb. So the two ends of the bond market are now telling opposite stories. The short end is listening to the Fed. The long end is pricing in a collapse in oil and betting that the inflation scare is fading.

Dean’s note:
The bond market is the adult in the room and the quiet assassin of frothy markets. The long end, especially. It does not vote, it does not hold press conferences, and it does not get rattled by a single meeting. It just prices the future in real money, with real money on the line.

So when the loudest voice in the room, the Fed, and the smartest one, the 30-year bond, disagree, I have learned to side with the quiet one. Watch the long bond this summer. It just told you what it thinks of the hike.

I have been writing 'watch ships,' not 'statements,' in this letter for a month. Last weekend handed me the cleanest proof of that idea I could ever ask for.

The formal US-Iran signing ceremony, the one set for Switzerland with the handshakes and the cameras, was abruptly called off after Israel struck targets in Lebanon, and the talks broke down.

The statement fell apart. And yet oil barely flinched, holding near 80 dollars, well below the near-97 it touched two weeks ago. Why? Because the ships kept sailing. The US ended its naval blockade, Kuwait restarted production, insurers opened a 400-million-dollar facility to cover safe passage, and Saudi supertankers that had sat dark in the Gulf for months sailed out into the open sea.

Dean’s note:
I could not have scripted it better. The ceremony collapsed. The politicians stopped smiling for the cameras. And the price of oil shrugged, because the cargo does not care about the photo-op. The tankers are moving, the premium is mostly gone, and that is the only fact that pays your gas bill.

Watch ships, not statements. The statement is theater. The ship is the truth. When the two disagree, believe the ship every single time.

SpaceX went public eight days ago in the biggest stock offering in history, priced at $135 dollars a share. By Tuesday, it had surged to about $226 dollars, passed Amazon, and briefly passed Microsoft to become the fourth-most-valuable company in the country. A remarkable run.

Then it fell. By Thursday, the stock had dropped about 20% from that Tuesday peak, into what traders politely call bear-market territory, all before it had traded six full days. It is still worth more than $2 trillion dollars, a price many analysts have warned makes no sense, and the company is reportedly already lining up a 20-billion-dollar bond sale. This news sent it down to about the same level it traded its first day as a public company.

Dean’s note:
One week ago, I told you new offerings are built to be sold to you, not handed to you, and that there is no prize for being first into a crowded room. One week. The hottest IPO in history surged, passed Amazon, and then retraced significantly before most people could even spell the ticker.

That is not investing. That is a casino with a rocket painted on the sign. A great company and a great stock are not the same thing, and a $2.3-trillion-dollar price tag leaves zero room for error. I am still happy to watch this one from the rail.

Underneath all the week's drama sits a number worth keeping in the back of your mind. Just ten companies now make up close to forty percent of the entire S&P 500, and every one of them is tied to the AI story. Now add a newly public SpaceX, already one of the largest companies in the country, on day one.

That concentration is wonderful on the way up. It is also exactly why one merely good earnings report from Broadcom could knock a trillion dollars off the market in a single afternoon a couple of weeks ago. When the whole market leans this hard on a handful of names telling the same story, its health rides on those few names never stumbling. And SpaceX just showed you how fast one of these giants can drop 20%.

Dean’s note:
I am not telling you to avoid the leaders. They lead for a reason. I am telling you not to let them quietly become your entire portfolio just because they keep winning.

The cheapest insurance in investing is diversification, and it is never cheaper than when everyone has decided they do not need it. When ten names are forty percent of the market, and they all lean on the same story, the exits get very narrow very fast.

Stay invested. Stay selective. And when the Fed and the bond market disagree, listen to the bond market.

A week with a record high, a hawkish Fed surprise, a peace ceremony that collapsed, and a green finish anyway. Here is what I am holding onto.

• The Fed turned hawkish, but it is fighting last month's war. It held rates and penciled in a possible hike, staring down an inflation scare driven mostly by oil, as that oil collapsed. Do not panic over a forecast built on a falling barrel.

• The bond market disagrees, and I side with the bond market. The same week the Fed turned hawkish, the 30-year yield fell to a three-month low. The long end of the bond market is the adult in the room, and it is betting this inflation scare fades.

• Watch ships, not statements, just passed its toughest test. The formal peace ceremony got canceled, and oil held near 80 anyway, because the tankers kept sailing. The cargo does not care about the photo-op.

• SpaceX round-tripped in a week. Up 67% past Amazon, then down 20% into a bear market, before it had traded six full days. New offerings are built to be sold to you. There is no prize for being first into a crowded room.

• Ten stocks are now forty percent of the market, all AI, plus a giant new rocket. Wonderful on the way up, unforgiving on the way down. Own the winners. Do not let them become your whole book.

• 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. The investors who win over decades are the ones who keep showing up, in the loud weeks and the quiet ones.

Here is where I land. This market just took a hawkish Fed, a canceled peace deal, and a 20% drop in the biggest IPO ever, and still closed the week higher. That is a resilient market, not a fragile one. Stay invested, because the trend and the falling oil both point up. Stay selective, because the gains are crowded into a handful of names and the headlines can turn on a dime.

Stay calm. Stay selective. And the next time the loudest voice in the room tells you to be afraid, go check what the quietest, smartest one is doing. Last week, the Fed shouted hike, and the long bond quietly said it does not believe it. I know which one I am listening to.

- Dean

P.S. The number that sticks with me this week is the 30-year Treasury yield, sitting at a three-month low. Read that again. The very same week the Federal Reserve told us it might raise interest rates, the most patient and least emotional money on the planet quietly pushed long-term yields down, betting the inflation scare is already fading. The Fed gets the headlines and the press conference. The long bond just gets the future right more often than not. When the loud voice and the quiet voice disagree, I will take the quiet one every time.

And one more thought. SpaceX going public was just the opening act. The pipeline of new technology and AI companies waiting to follow it onto the public market is now estimated at around $3.6 trillion dollars, with OpenAI and Anthropic among the names lining up. That is a staggering amount of brand-new, mostly money-losing stock about to hit the market, and the cash to buy it has to come from somewhere.

SpaceX's 20%+ drop in its first week is the first real test of whether the market can absorb that wave. A strong recovery would be a green light. Another sharp drop could set the cat among the pigeons. It will not move things tomorrow. But over the next year, where all that new equity gets funded from matters more than any single earnings report. Keep an eye on it.

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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.