I'm Dan Sheehan, a financial advisor and wealth advisor based in Charlotte, North Carolina. I work with high income professionals, families and business owners on comprehensive financial planning, investment management and tax-efficient wealth strategies.
My clients are typically doing well financially but want a more coordinated approach to their investments, taxes and long-term planning. That can include retirement planning, equity compensation and RSUs, concentrated stock, business owner planning and building an investment portfolio around the life they actually want to fund.
This newsletter is where I share my thinking on the markets and what is impacting your portfolio.
Good morning investors,
The thing I have flagged as my chief concern for a good while now is the story this morning. A global selloff in government bonds has pushed long term yields to levels most investors have never traded through, and it is happening all over the developed world, not just the US. This is the risk I keep saying matters more than anything happening in the stocks, and it deserves the top of the letter today.
Monday saw the S&P and Dow each down 0.5% and the Nasdaq down 0.3%, as the stalled Iran situation and rising yields weighed on the market. The 30-year Treasury closed at 5.31%, its highest since 2007, and pushed higher again overnight toward 5.33%, a level not seen since 2002. The 10-year sits near 4.74%, also the highest since 2007. Futures are lower this morning, led down by the semiconductors, with Western Digital and SanDisk both down around 6%, though the Dow is holding up on a Home Depot beat. Oil is moving to the upside with Brent back above $90.
The Bond Market Is the Story
Before I get into this section, I want to give a little education for my readers who may not fully track the bond market or its direct link to equities. This should help give some context on why I have written about this so much lately.
When a government wants to spend more than it takes in, it borrows by selling bonds, which are basically IOUs that pay the buyer interest over a set number of years. The interest rate it has to offer is the yield. When buyers get nervous about lending, whether because there is too much debt being issued, because inflation might eat into their return, or because they simply want more compensation to tie their money up for thirty years, they demand a higher yield. That is what has been climbing, and the long end of the market, the bonds that mature furthest out, is where the strain is showing most.
Why should a stock investor care about government bond yields? Here are two main reasons:
Opportunity Cost: Higher yields make risk-free government bonds an attractive alternative, pulling capital away from equities. Furthermore, future corporate earnings are worth less today when a guaranteed bond offers a higher return to wait.
Borrowing Costs: Sovereign yields set the benchmark rate across the broader economy, raising financing costs for everything from corporate debt to consumer mortgages.
That brings us back to the situations today. Long yields are climbing as investors are demanding more compensation to lend to governments for decades, and the pressure is showing up everywhere at once. German yields hit a 15 year high overnight, French yields reached levels of 2008, and Japanese long yields pushed past their spring peak to the highest in 40 years. When Japan's long bonds move, it spills straight into ours, because global capital treats these markets as connected. A repricing of long term borrowing costs abroad pulls US yields up regardless of what our own data says.
Interest on the national debt has reached a record $1.4 trillion over the past year, nearly triple what it cost in 2020, and on the current path it will surpass Social Security as the government's single largest expense within a few years. That is the box a heavily indebted government finds itself in when yields rise. This means they are paying more to service the debt they already own. You then add in the heavy Treasury issuance, with the latest 30-year auction clearing at the highest yield since 2001 and demand at the long end looking less than robust, and you have a market asking for a bigger premium to fund the deficit. The AI buildout compounds it, since the tech issuers financing all this infrastructure through the bond market are competing with the government for the same pool of capital.
Yields have refused to fall even as the data softened. July retail sales were weak and the labor market has cooled, which is normally the kind of backdrop that would bring yields down, but instead they continued to climb. This shows it is being driven by supply, fiscal worry, and a global repricing rather than by the growth outlook. The level I keep watching is 5% on the 10-year, because that is roughly where the pressure on the market's multiple turns broad. We sit near 4.74%. This remains my single biggest concern.
Iran Escalates as the Truce Expires
The other factor in this morning's move is the escalation in the Middle East. The ceasefire between Washington and Tehran expired Monday with no extension and no breakthrough, and both sides have walked away from further talks. Overnight a cargo vessel was struck by a projectile crossing the Strait of Hormuz, and President Trump threatened to strike Oman, a longtime US ally and mediator, for moving toward its own arrangement with Iran. Treasury Secretary Bessent promised aggressive sanctions on Oman if it gets involved and unprecedented new measures on Iran this week. The US blockade continues, and the strait stays effectively contested.
The escalation changes the near term picture, and it feeds the inflation worry driving bonds. Oil above $90 Brent pushes straight into the price data at the worst possible moment, right as the Fed was gaining room to hold on cooling inflation.
The Calendar Turns Less Friendly
Yesterday I wrote about September carrying its seasonal baggage. We are entering the stretch that has historically been the least kind in midterm election years. BTIG's Jonathan Krinsky, CMT noted that the window from mid-August into mid-October has produced pullbacks of at least 7% in every midterm year going back through 1990, from 1998 and 2002 up through 2018 and 2022. That is a consistent enough pattern to respect, layered on top of the bullish sentiment I flagged, which leaves the market exposed when few are braced for a decline.
I would not build a portfolio around a seasonal marker, and history is a tendency rather than a promise. The counterweight is the earnings season just behind us, where 86% of companies beat expectations, one of the strongest showings in memory. A market carried by fundamentals that strong can shrug off seasonal odds. This is just a reminder that the stock market is never a straight line.
The Consumer Read Begins
The retail earnings that anchor this week started with Home Depot, which beat and held its full year guidance steady. Its CFO described operating in what he called frozen housing market conditions, which lines up with housing starts today expected to drop sharply. The read is a consumer and a housing market that are holding rather than accelerating, with the company leaning on taking share rather than a rising tide.
This connects to a comment I recently made where I said that the economy is leaning less on the consumer and more on corporate investment and the AI buildout. A steady but soft read from the home improvement names would fit that picture, and the bigger tells come later this week from Walmart and the broader box stores. For now the consumer looks durable rather than either booming or breaking, which is about what the earnings and the data have been saying all along.
Final Thought
Long yields at multi-decade highs, a global bond selloff with almost no margin for error in the pricing, a fiscal backdrop that grows harder as rates rise, and now an Iran escalation pushing oil and inflation the wrong way. Together they explain why stocks are heavy and why the long end deserves more of your attention than the daily moves in the chips.
None of it changes my longer term read, because the fundamentals underneath remain as strong as I have seen, with the cleanest earnings picture outside a recovery and a buildout that keeps confirming itself. What it does is reinforce the caution I have carried into the fall. The seasonal odds are poor, sentiment is bullish enough to leave the market exposed, the bond market has not shown how it will judge Warsh's Fed, and the midterms add their own uncertainty. I stay constructive for the long term while treating a pullback as likely and welcome rather than something to fear. I keep my closest watch on the 10-year as it edges toward 5%, hold the energy exposure that days like this reward, and would use weakness in quality names as the opportunity it usually turns out to be.
Best regards,
Dan Sheehan [email protected]
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Market Pulse with Dan Sheehan is a personal market commentary newsletter and is independent from my employer. The content is provided for informational and educational purposes only and reflects my views as of the publication date, which may change without notice. Nothing contained herein should be construed as personalized investment, legal, tax, or financial advice, or as a recommendation to buy or sell any security. Any positions discussed represent my own views and may not be suitable for every reader's objectives, financial situation, or risk tolerance. Information is derived from publicly available sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Readers should conduct their own research and consult their own professional advisers before making financial decisions.