The 10‑year yield premium over The Capital Spectator’s estimate of “fair value” has increased persistently since bottoming in October 2025 at roughly equilibrium—i.e., the market yield and fair‑value estimate more or less matched. In the ensuing months, the market rate has increased while the fair‑value estimate has remained stable, a setup that lifted the premium last month to 51 basis points—the highest since July 2025. (The fair-value estimate is calculated as the average of three models that use a variety of economic and financial-market inputs.)

For a clearer view of how the 10‑year market premium and discount have changed through time, the next chart highlights the variability across the decades. From a historical perspective, the current premium is modest and within a typical range. The question is whether the recent upturn in the premium will continue.

One of the key factors that could drive the premium higher is inflation. If the bond market perceives that inflation is gaining traction and the Federal Reserve isn’t responding sufficiently to cool pricing pressure, the 10‑year premium could rise further.

From an investment perspective, a relatively high yield premium is attractive, providing an opportunity to lock in a rate that’s elevated relative to underlying fundamentals. History suggests that the market often moves to relative extremes, and so there’s a possibility that a hefty premium will become available in the near term.

From an economic perspective, by contrast, a high market premium is a macro headwind. In the previous premium spike in 2022–2023, the spread peaked at roughly 130 basis points, a period that coincided with a sharp slide in the stock market in 2022.

History doesn’t repeat, but it can rhyme. The yield premium for the 10‑year is still modest. The key factors that will likely determine whether the premium stays modest or continues to climb are bound up with policy decisions at the Federal Reserve and the course of the Iran conflict.

The bond market isn’t ringing alarm bells, but the rising trend in the 10‑year yield highlights that investors are becoming increasingly sensitive to inflation and Fed policy decisions.

The technical profile of the 10‑year rate continues to reflect an upward bias. A durable peace in the Middle East crisis and/or clear signals from the Fed that it will decisively act to tame inflation will be key variables that could stabilize, if not lower, Treasury yields. At the moment, however, both of those policy goals remain in flux, which suggests that the 10‑year yield will continue to test the upside.

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The main risk factor is (still) Iran, but if the conflict remains relatively calm, the foundation for a softer pricing trend appears to be in place.

Let’s start with the standard CPI data on a rolling one‑year basis. Headline and core measures eased in July, suggesting that the war‑driven inflation spike has peaked. Notably, core CPI continues to moderate, dipping to a 2.5% year‑over‑year pace, which matches the pre‑war trend in January and is close to the Fed’s 2% target.

Three alternative measures of CPI (published by the Cleveland Fed and Atlanta Fed) that attempt to minimize noise and emphasize the inflation signal also highlight ongoing disinflation through July.

The one‑year trend in wages is also pointing to disinflation. Combined with the sluggish increase in private‑sector payrolls lately, this data suggests that the labor market’s influence on near‑term inflation is easing.

The Cleveland Fed’s nowcast for CPI in August indicates that disinflation will continue in the next update.

The Capital Spectator’s proprietary nowcasting model for core CPI also highlights ongoing disinflation for the near term. This model’s estimates have been generally correct in recent months in terms of nowcasting the directional bias (see here, for example). The fact that the August outlook mirrors the Cleveland Fed’s nowcast strengthens the case for anticipating that inflation pressure will ease further.

Another proprietary model run by The Capital Spectator also points to softer inflation pressure after the spike earlier in the war. The Inflation Pulse Index aggregates the 12‑month percentage changes for all 32 components of the Consumer Price Index and scores each benchmark. The master score — the Inflation Pulse Index — reflects the overall inflation bias. Readings range from 0 (a strong disinflation/deflation bias) to 1.0 (a strong inflation bias).

There are several caveats to consider that could spoil the disinflationary party. In addition to the uncertainty surrounding the Middle East conflict, the bond market remains skeptical that inflation risk is easing. The U.S. 10‑year Treasury yield, for example, rose yesterday to 4.70%, trading near its highest level since early 2025.

Until the bond market is persuaded that the worst of the war‑related inflation threat has passed, and that disinflation is the path of least resistance, the outlook for Fed rate hikes will remain unsettled. Although yesterday’s CPI data looks encouraging, if only on the margins, the Federal Reserve does’t operate in a vacuum and will remain in a tug-of-war with bond yields for setting monetary policy.

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Year to date, copper is the standout winner among the main exchange‑traded products offering a pure play on metals. The US Copper Index Fund (CPER) is up 15.1% so far in 2026, ahead of its counterparts and two ETF benchmarks that track mixes of base (DBB) and precious (DBP) metals.

Copper has become the critical wiring behind the entire AI buildout. A tightening copper market — driven by slow mine development, declining ore grades, and surging demand from electrification and AI infrastructure — has created a supply shortage that’s pushing prices higher.

“The underpinning story of elevated copper prices has been data‑center and power‑grid demand to support the rapid AI industry expansion,” says William Osnato, Barchart’s director of commodity data research and analysis.

Meanwhile, gold and other precious metals have rebounded from recent lows, raising the possibility that the correction in this corner may have run its course in the near term. High oil prices have helped push bond yields sharply higher in recent months — a key drag on gold — but renewed prospects for negotiations with Iran could stabilize or even trim crude prices, easing inflation pressure, pulling yields lower, and giving gold room to recover.

Betting markets highlight cautious expectations that gold’s recent upswing will carry it to materially higher levels by year‑end from the current $4,409 spot price (Aug. 11), according to Kalshi data. The odds of a close at $4,500 or higher by Dec. 31 are currently 48%, the same probability assigned to a close at $4,600 or higher.

Thanks to a strong rally earlier in the year, the global equity market ex‑U.S. is still ahead of American shares. Vanguard International (VXUS) is up 15.7% year to date, maintaining a moderate premium over the U.S. stock market’s 14.0% gain via the SPDR S&P 500 ETF (SPY). But the return spread is narrowing, and the recent surge in U.S. stocks could be an early sign that international equities will soon fall behind in relative terms.

A regional breakdown shows that Asia ex‑Japan (AAXJ) is the top performer, rallying 21.5% this year. But the fund has stumbled lately. Japan (EWJ) is the second‑best performer in 2026 and is trading near a record high, offsetting some of the weakness elsewhere in Asia.

Zooming out and comparing a broad measure of global equities ex‑U.S. (VXUS) with U.S. shares (SPY) suggests that relative strength in international stocks has peaked. The rally favoring foreign over U.S. equities that began more than a year ago has recently reversed, based on the ratio of the two funds. The implication: the long‑running underperformance of foreign stocks may again become the norm.

The second chart below zooms in on the VXUS:SPY ratio’s recent performance. For the first time since the war with Iran began, the 50‑day average for the ratio has slipped below its 200‑day average, indicating that relative weakness in foreign shares may continue in the near term.

The recent soft patch is also evident in emerging markets (VWO).

In a market obsessed with AI‑powered momentum, foreign equities suddenly look like they’re running out of runway. If the crowd keeps betting on America’s tech engine, international leadership may prove to be just another brief detour in a long U.S. bull narrative.

Treasury yields eased last week, although rates remain elevated relative to where they were when the war with Iran started on Feb. 28. The surprisingly weak jobs report for July takes some of the near-term pressure off the Federal Reserve to lower rates to tame inflation. But it’s unclear if the bond market is set to unwind the yield premium that has accrued over the past four-and-a-half months.

Inflation and pinched energy exports due to the war are key drivers behind the rise in yields, but there are other factors that could keep the bond market wary in the weeks and months ahead. One is the federal budget deficit, which continues to deepen. As federal borrowing expands to fill the gap between what the government spends and what it takes in from tax revenue, the growing supply of Treasuries can outstrip investor demand, pressuring prices lower and driving yields higher.

That’s a mounting risk, but one that the bond market has shrugged off for years. No one knows when or if investors will demand a higher yield premium because of the government’s red ink, but as the deficit deepens, as many projections say it will, the red ink may become harder to ignore.

The threat to Fed independence may move back to the fore, too, which could shake bond market stability. President Trump has revived his effort to remove Fed Governor Lisa Cook, giving her 21 days to respond to uncharged mortgage fraud allegations — claims she attributes to clerical errors. The move follows a June Supreme Court ruling that blocked her immediate firing because she was denied procedural due process. Because the Court did not define legal “cause” for removal or rule on the fraud claims, however, it left the door open for Trump to issue proper notice and restart the process to end her term, which runs through 2038.

A more immediate concern for the bond market is inflation, which has been running above the Fed’s 2% target for over five years. The war with Iran exacerbated the overshoot, although inflation’s trend eased in June, suggesting that pricing pressure is starting to cool.

Wednesday’s report on consumer prices in July will be closely read for reassessing how much inflation risk is still pulsing through the economy, and whether the Fed needs to tighten policy at next month’s FOMC meeting. Economists are expecting a relatively tame update, forecasting that year-over-year measures of headline and core inflation will tick lower to 3.4% and 2.5%, respectively, based on Econoday.com’s consensus forecasts.

Even if consumer prices ease again in July, the question is whether the Fed will continue to tolerate inflation running well above its target. A crucial input for answering that question may lie with the bond market, and how it prices inflation risk leading up to the September FOMC meeting.

The front line for gauging bond‑market sentiment is the 30-year yield, the most inflation-sensitive maturity. The long yield eased last week, but it’s unclear if that’s a temporary pause in an ongoing trend that will push rates higher.

Negotiations with Iran will likely remain a crucial variable for market sentiment. In line with recent developments on this front, the news flow is choppy. Depending on the hour or day, the outlook for a resolution to the crisis alternates between optimism and pessimism and many shades in between.

Rising Treasury yields, in sum, could act as a brake on the stock market’s revived confidence until it’s clear that a durable peace deal has been hammered out. The final verdict, in short, still belongs to the bond market.

● Reining in the Bulls: How to Stop Corporate Abuse in an Age of Unbridled Greed
Michael Marx
Summary via publisher (Island Press)
Major corporations exercise enormous control over our lives. They influence how we think, what we buy, who we vote for, and how our society evolves. They are key drivers of the wealth that fuels our economic system, and their power insulates them from strict government regulations and accountability. In this setting, corporate abuses—pollution, toxic and inhumane work environments, defective products—go unchecked. When the government refuses to corral industry’s misdeeds, advocacy groups turn to corporate campaigns to expose and change harmful behavior.

● Untamed Unicorns: Why Startup Finance Is Broken and How to Fix It
Renée M. Jones
Review via Boston College Law School Magazine
Much of what is happening with startup companies, from governance to financing to culture, has Professor Renée Jones concerned. The nationally renowned expert in securities law, who served as director of the Securities and Exchange Commission’s Division of Corporation Finance from 2021 to 2023, is calling out the danger being posed by rapid deregulation of securities markets.
The term “unicorns” was originally coined to convey just how rare and extraordinary these businesses were, but the startup ecosystem has since changed dramatically. Whereas there were just an estimated 40 such companies in 2013, that number has ballooned to an estimated 1,500 today, a number that also includes so-called “decacorns,” valued at over $10 billion, and even “centicorns,” valued at over $100 billion.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. By purchasing books through this site, you provide support for The Capital Spectator’s free content. Thank you!

The current estimate points to a real annualized 2.7% increase in output, according to the median nowcast. If confirmed when the official numbers are published, the gain would mark a solid improvement over Q2’s modest 1.5% rise.

To state the obvious, the nowcast should be viewed cautiously this early in the quarter. The Bureau of Economic Analysis is scheduled to publish its preliminary Q3 GDP report on Oct. 29 and, to cite the standard caveat, a lot can happen between now and then. All the more so given the unsettled conflict in the Middle East and the resumption of US tariffs. Estimating how these risk factors could influence economic activity is precarious at best. Add in uncertainty about inflation’s path and it’s clear that confidence surrounding economic analysis remains a day-to-day affair.

The early numbers for Q3, however, look encouraging. Indeed, all of the nowcasts in the chart above are printing above the 1.5% advance in Q2. For the moment, at least, there’s a reasonable case for expecting that growth will pick up in the current quarter.

One source of optimism is stronger business activity in July, based on PMI survey data published by S&P Global Market Intelligence. Polling indicates “an encouraging acceleration in economic growth at the start of the third quarter,” notes Chris Williamson, chief business economist at the consultancy.

Lower oil prices helped, thanks to reduced hostilities in the Middle East. The renewed fighting in recent weeks suggests the relative calm is precarious, but the relative calm appears to be holding.

But as Williamson points out, some of the PMI-based rebound in July is linked to a one-time pop from the World Cup soccer games. He says “that the biggest improvement in demand in July was reported among consumer-facing service providers, spending on which surged at a rate not seen for over four years

linked to the FIFA World Cup and US Independence Day events.” The weeks ahead will stress-test the durability of the initial Q3 numbers, but for the moment the early estimates suggest that softer growth in the previous quarter is picking up.

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The Wall Street Journal reports that President Trump has “repeatedly” called Fed Chair Kevin Warsh—discussing AI and Iran, but avoiding interest rates. That backdrop may sharpen the bond market’s sensitivity to any hint of political pressure on the central bank, especially given Trump’s history of urging Warsh’s predecessor to cut rates.

According to the Journal, “The president calls Warsh in bursts… according to people familiar with the matter.” The sources said Trump called “several times in a stretch of days, then quiet for longer periods. Trump has sought Warsh’s counsel on a range of matters, including how the war in Iran and the rapid rise of artificial intelligence are affecting the economy, some of the people said.”

How or if the bond market reacts to this reporting, and whether it’s a sign that Warsh will face rate-cutting pressure, will hinge on traders’ read of the political backdrop. The Journal’s article will surely increase scrutiny of Warsh at his next press conference during the upcoming policy meeting in September, which will include new Fed economic projections.

Fed Chair Kevin Warsh’s debut press conference last month drew a skeptical, cautious reaction from Wall Street, headlined by a rise in long-term Treasury yields as the bond market demanded what some call a “credibility premium.” Analysts criticized the disconnect between Warsh’s hawkish rhetoric on price stability and the Fed’s decision to hold rates steady despite three internal dissents, while his deliberate move to end detailed forward guidance left investors unsettled by the lack of clarity on future rate paths.

Next week’s July report on consumer inflation will provide a key update for deciding if the rise in pricing pressure due to the Iran war is temporary. Reports this week that a new deal is being negotiated to reopen the critical Strait of Hormuz waterway, and thereby facilitate more energy exports, could help keep Treasury yields stable/lower while easing pressure on headline inflation in the months ahead. In that case, the Fed’s patience on rates may look prescient in hindsight.

Optimists point to the pullback in the 30-year Treasury yield this week. After rising to a 19-year high on Friday, the most inflation-sensitive maturity has fallen in each of the three trading sessions through Wednesday.

The policy-sensitive 2-year has also fallen in recent days, although it remains well above the effective Fed funds rate – a sign that the market is still pricing in a rate hike.

It’s unclear if Treasury yields have peaked or will continue to rise further and raise the pressure on the Fed to hike. Fed funds futures are again pricing the odds of a rate hike next month as basically a coin flip. Yet the fact remains that multiple risk factors are spinning in a grey zone of ambiguity – Iran, inflation, economic activity – and so the Fed still faces an unusually difficult period for managing policy decisions.

A complicating factor is the view by some analysts that the Fed is in danger of losing credibility after Warsh last month offered a vague response regarding whether inflation warranted further tightening. The conclusion on this debate has yet to be determined, and there’s pusback from some economists and market analysts, but the fact that it’s become a talking point on Wall Street isn’t helpful.

Add in new questions about how much influence Trump has over Warsh and the stage is set for ongoing volatility and uncertainty in the bond market.

This much is obvious: If key Treasury yields mount a new run higher, that will be a clear sign that the bond market is losing faith in the Fed.

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The S&P 500 Index soared on Tuesday (Aug. 4) to a record high, exceeding the previous peak (set in early June) by a wide margin. One day’s trading should be viewed cautiously, but it’s also tempting to view yesterday’s blowout rally as the release of pent-up bullish energy that’s been contained over the past month by renewed geopolitical risk linked to the Middle East — risk that may be, possibly, set to ease in the weeks and months ahead. If so, the main catalyst that’s supported energy shares this year may have crested.

Viewed from a year-to-date perspective, energy is still holding the top spot, based on a set of ETFs through Tuesday’s close (Aug. 4). The SPDR Energy ETF (XLE) is posting a 32.7% gain in 2026, slightly ahead of tech’s 30.1% rise, based on the SPDR Technology ETF (XLK). Both performances are far ahead of the market benchmark’s 13.7% increase.

But yesterday’s market action for energy and tech stocks highlights a divergence. While tech (XLK) soared 5.0% on Tuesday, energy (XLE) dipped 0.5%. Set against the backdrop of reports that yet another U.S.–Iran peace deal may emerge this week, the crisis premium that’s lifted energy stocks may fade.

“We are in talks with the Iranians,” Treasury Secretary Bessent told CNBC on Tuesday. “There is a chance we may have a deal today or tomorrow to open the Strait and move towards a more normalized position in this conflict.”

President Trump confirmed the possibility, telling reporters on Tuesday that a deal could come as early as today. “It could happen. Tomorrow or the next day,” he said, speaking on Tuesday. “A lot of progress has been made.”

Skepticism is still recommended when it comes to the prospects for peace in the Middle East. One risk is that Iran isn’t the only factor affecting energy prices. Yemen’s Iran-backed Houthis reportedly struck a Saudi Arabian tanker in the Red Sea today, a reminder that this remains a multi-front conflict.

It’s reasonable to assume that Iran risk will remain a shape-shifting cloud that hangs over energy markets well into the future. A formal end to the fighting and full resumption of energy exports may not be forthcoming. But the political incentive for the White House to downsize the war and its macro effects ahead of the mid-term elections is strong, and growing by the day. That implies that gray-zone clashes that straddle the line between war and peace are the more likely path, moving these events off the front pages and helping Wall Street refocus elsewhere.

Yesterday’s market action offered a test of this theory as the AI-driven earnings narrative returned to the fore. Although there’s growing anxiety about AI’s costs and the extent of business opportunities with the technology, earnings data at the moment are strong enough to reanimate the tech bulls. FactSet estimates that 86% of S&P 500 companies have reported actual earnings per share results in Q2 that beat analysts’ estimates.

A related benefit for market sentiment that flows from a less-acute Middle East crisis: softer inflation risk. Although it will take several months at a minimum to determine if pricing pressure will stabilize, ease or accelerate, some form of relative peace that facilitates higher energy exports through the Strait of Hormuz will favors forecasts of cooler inflation, which will give the Federal Reserve more space to delay rate hikes.

This relatively rosy scenario is precarious and could quickly fall apart since it rests on a shaky assumption: the worst of the Iran crisis has passed, which provides a backdrop for market sentiment to refocus on AI-related growth opportunities, real or imagined.

How long the sentiment shift lasts is unclear, but yesterday’s market surge suggests the crowd is again motivated to give optimism the benefit of the doubt.

GMI represents a market‑value‑weighted blend of the major asset classes (excluding cash) using ETF proxies, and today’s update reflects the average of three underlying models, which are defined below.

The latest forecast—an annualized 8.0%—is modestly above last month’s estimate but still far short of the benchmark’s decade‑long trailing return, although the gap has been narrowing lately.

Consistent with recent trends, several of GMI’s underlying components continue to show expected returns that fall short of their results over the past ten years, highlighted by the red boxes in the far‑right column in the table below. The widest divergence remains in U.S. equities, where the models anticipate a meaningfully softer, though still solid, performance relative to history. Overall, GMI’s projected return remains below its trailing 10‑year pace through July: 8.0% versus 9.6%.

GMI represents a theoretical benchmark for the “optimal” portfolio that’s suited for the average investor with an infinite time horizon. Given those practical limitiations, GMI is useful as a starting point for customizing asset allocation and portfolio design to match a particular investor’s expectations, objectives, risk tolerance, etc. GMI’s history suggests that this passive benchmark’s performance will be competitive with most active asset-allocation strategies, especially after adjusting for risk, trading costs and taxes.

It’s likely that some, most or possibly all of the forecasts above will be wide of the mark in some degree. GMI’s projections, however, are expected to be somewhat more reliable vs. the estimates for its  components. Predictions for the specific markets (US stocks, commodities, etc.) are subject to greater variability compared with aggregating the forecasts into the GMI estimate, a process that may reduce some of the errors through time.

Another way to view the projections above is to use the estimates as a baseline for refining expectations. For instance, the point forecasts above can be adjusted with additional modeling that accounts for other factors and assumptions not used here. Customizing portfolios for a specfic investor, to reflect risk tolerance, time horizon, and so on, is also recommended.

For perspective on how GMI’s realized total return has evolved through time, consider the benchmark’s track record on a rolling 10-year annualized basis. The chart below compares GMI’s performance vs. ETFs tracking US stocks and US bonds through last month. GMI’s current return for the past ten years is a robust annualized 9.6%, a modest decline from June’s performance.

Here’s a brief summary of how the forecasts are generated and definitions of the other metrics in the table above:

BB: The Building Block model uses historical returns as a proxy for estimating the future. The sample period used starts in January 1998 (the earliest available date for all the asset classes listed above). The procedure is to calculate the risk premium for each asset class, compute the annualized return and then add an expected risk-free rate to generate a total return forecast. For the expected risk-free rate, we’re using the latest yield on the 10-year Treasury Inflation Protected Security (TIPS). This yield is considered a market estimate of a risk-free, real (inflation-adjusted) return for a “safe” asset — this “risk-free” rate is also used for all the models outlined below. Note that the BB model used here is (loosely) based on a methodology originally outlined by Ibbotson Associates (a division of Morningstar).

EQ: The Equilibrium model reverse engineers expected return by way of risk. Rather than trying to predict return directly, this model relies on the somewhat more reliable framework of using risk metrics to estimate future performance. The process is relatively robust in the sense that forecasting risk is slightly easier than projecting return. The three inputs:

* An estimate of the overall portfolio’s expected market price of risk, defined as the Sharpe ratio, which is the ratio of risk premia to volatility (standard deviation). Note: the “portfolio” here and throughout is defined as GMI

* The expected volatility (standard deviation) of each asset (GMI’s market components)

* The expected correlation for each asset relative to the portfolio (GMI)

This model for estimating equilibrium returns was initially outlined in a 1974 paper by Professor Bill Sharpe. For a summary, see Gary Brinson’s explanation in Chapter 3 of The Portable MBA in Investment. I also review the model in my book Dynamic Asset Allocation. Note that this methodology initially estimates a risk premium and then adds an expected risk-free rate to arrive at total return forecasts. The expected risk-free rate is outlined in BB above.

ADJ: This methodology is identical to the Equilibrium model (EQ) outlined above with one exception: the forecasts are adjusted based on short-term momentum and longer-term mean reversion factors. Momentum is defined as the current price relative to the trailing 12-month moving average. The mean reversion factor is estimated as the current price relative to the trailing 60-month (5-year) moving average. The equilibrium forecasts are adjusted based on current prices relative to the 12-month and 60-month moving averages. If current prices are above (below) the moving averages, the unadjusted risk premia estimates are decreased (increased). The formula for adjustment is simply taking the inverse of the average of the current price to the two moving averages. For example: if an asset class’s current price is 10% above its 12-month moving average and 20% over its 60-month moving average, the unadjusted forecast is reduced by 15% (the average of 10% and 20%). The logic here is that when prices are relatively high vs. recent history, the equilibrium forecasts are reduced. On the flip side, when prices are relatively low vs. recent history, the equilibrium forecasts are increased.

Avg: This column is a simple average of the three forecasts for each row (asset class)

10yr Ret: For perspective on actual returns, this column shows the trailing 10-year annualized total return for the asset classes through the current target month.

Spread: Average-model forecast less trailing 10-year return.