The bond market has been getting a bit nervous of late. This nervousness is displayed via price action that is picking up in volatility as well as some downside price action overall. With the inverse relationship of prices to interest rates, as prices have declined, interest rates have moved higher.

As a general statement, this has been true across the bond market spectrum.

For our part, within numerous editions over recent years, we have been focused on the long-standing megatrend that ended over 5 years ago in an important segment of the bond market. Like all megatrends, once they end, few realize they have actually ended until many years have passed by.

The megatrend in question is the multi-decade trend of ever-lower interest rates within the treasury market.

To date, most are unaware that said megatrend is over. Many still seemingly believe this is a short-term blip even though 5 years have passed by on this new trend. It takes time for collective psychology to adjust.

A few years ago, in our initial sharing of the end of this megatrend, most thought we had lost our minds. To be fair, it was not an opinion of ours but rather factual market-based data that was calling an end to the megatrend.

Our focus is the benchmark 10-year Treasury note because it impacts other interest rates in the economic system. As an example, mortgage rates are impacted according to the general direction of the 10-year treasury.

The 10-year, on a yield basis (think interest rate), had a rock-solid downtrend in place that began way back in 1982.

At that time, anyone suggesting that the megatrend of ever higher rates was ending, and, in-turn, would usher in a multi-decade trend of ever lower rates was certainly viewed as having questionable mental faculties.

Prior to 1982, the same 10-year had been on a multi-decade megatrend of ever higher interest rates. The masses had become so accustomed to that trend, the thought of a trend in the opposite direction leaned toward lunacy.

So there it is: megatrends die hard, both in their actual trends and even harder through the acceptance of such in collective psychology.

The 5-handle is too close for comfort

Click For Larger View: https://schrts.co/TiPquGmE

Above is our often-shared megatrend chart of the 10-year treasury which dates back to the mid-1970s.

Along the path of recent years, we have shared this chart within many editions. To the far right of the chart we have added a new blue line marker that identifies the 5% level for this treasury security.

We are not there currently, but as shared at the outset, the bond market in general has been getting a bit nervous. This includes the above 10-year treasury notes.

If the above eclipses the 5% level, it will be a new cycle high in this multi-year uptrend process. Furthermore, that level, if attained, will take us back to mid-2007 interest rate levels. With a bit of rounding, let’s call that a 20-year high.

Psychologically, that will be an important number, both in light of the 5-handle being taken out to the upside along with the fact that it is a two-decade old level.

The deficits offer no letup in sight

Click For Larger View: https://fred.stlouisfed.org/graph/?g=1Wtrn

Above is a 21^st century view of the federal government’s annual deficit results. Each bar represents one fiscal year. The government’s fiscal year ends September 30^th of each year.

Our red rectangles are highlighting periods of annual deficits that are close to or eclipse $1 trillion. Outside of our highlight boxes, there are a few years that are at or come close to $800 billion.

Place these bars together, and we see how the well-recognized federal debt is off the charts.

Our more current era, identified by the right rectangle, has been posting consistent $1.5 plus trillion dollar deficit levels. Currently, up through April of 2026, the federal deficit is running close to $1 trillion with five months to go until fiscal year 2026 comes to a close.

We could say that we are right on track for another year of trillion-dollar-plus deficit spending results. We will know with certainty in a few months.

The above offers no letup in continued increases in debt issuance brought to market by the government.

Couple this with our continued sharing on the price inflation backdrop, and you have an ongoing recipe for collective bond market participants demanding higher interest rates in order to be incentivized to purchase and hold government-issued debt instruments.

Add to the above, the recently updated quarter-end result of the government’s interest payments on the accumulated debt equals an annual run rate of $1.2 trillion dollars. That is $1.2 trillion paid on interest alone.

As a reference point, it was just back in mid-2019 that we had attained a then-high point for interest paid on the debt of $578 billion. At that time, $578 billion spent on servicing interest only was viewed as unfathomable. That was just before a short dip that was easily eclipsed with a relentless trend to current levels.

The 5% level for the important 10-year treasury seems inevitable unless somehow government spending becomes more in line with tax receipts.

On the price inflation front, as we have shared in recent editions, the upward trend that is getting noticed now actually began to form nearly a year ago. The point to this observation is renewed price inflation is not war-related only. It has been simmering on the burner, if you will.

If trillion-dollar deficits along with price inflation continue to be viewed as acceptable policy stances, we should expect the bond market in general to be cautious at best. In terms of the 10-year treasury, it will not take much more of said deficits and inflation to see the 5-handle challenged.

If the 5% level is attained and exceeded, it will be very interesting to observe the reaction of various markets to that notable change. For us, this is one market based metric that is high on our “watch closely” list. We will share more on this as developments unfold, be they up or down.

I wish you well….

-Ken from Mind Your Stops

Have you seen what the stock market has done lately?

On a personal note, the above is a question I hear consistently. My knee-jerk response is, “Which stock market?”

Over recent years (post-2022 in particular), we have shared more editions than I can remember on the observation of how the stock market is narrow in its participation.

What this means is of all the companies that comprise the broad stock market, a remarkably low number of them are providing the upside performance that is juicing the well-recognized stock market indices.

Most notable is the traditionally reported S&P 500 index. This often-referenced index is a weighted index, which simply means a few handfuls of companies have an outsized impact on its performance.

Conversely, within the S&P 500 realm, there is the equal-weighted index, which is as its name implies. All 500 companies are given an equal weight in terms of their stock price performance impacting the results of this index.

Hence, in a general sense, the reason for my knee-jerk quip of “Which stock market?”

Our Dow Theory observations

Approximately a month ago we shared an edition speaking to the general stock market backdrop via what is known as Dow Theory. That represented our second look at Dow Theory thus far in 2026.

We shared multiple Dow Theory editions because it had been quite a while since the two component indices of Dow Theory were actually functioning constructively. With this, we shared them as additional perspectives that collective market participants were attempting to actually broaden stock market performance.

Dow Theory offers that if both the Dow Jones Industrial Average and the Dow Jones Transportation Average are both trending upwards, whereby higher highs are attained, then it bodes well for both the stock market as a whole as well as the general economic landscape.

While neither of those indices is screaming a newfound Dow Theory issue current day, to be fair, they certainly are not thriving, in particular when viewed through a comparative lens of select areas that are thriving.

This is the problem with the general stock market landscape, in particular, just in the last few weeks. We have seen a renewed massive outperformance of some areas while the broader market meanders around nearly aimlessly.

With a broader timeline perspective in mind, we can say the behavior of the stock market in just the last few weeks has reemphasized the larger stock market landscape post-2022.

That is, post-2022 the stock market has been consistently narrow in its performance with occasional attempts to broaden in performance, only to then go narrow once again. Rinse and repeat.

Back to our two S&P 500 indices

Relative to the two different S&P 500 constructs, the weighted version is experiencing comparative outperformance to that of the equal-weighted index. This is in light of heavier-weighted companies within the index being in the sweet spot of what is working within the stock market performance backdrop. As shared above, this is very noticeable once again just in the last few weeks.

The Artificial Intelligence (AI) space and areas related to its build-out are the sweet spot of stock market performance. Various companies in line with this space are having an outsized performance impact with the traditionally reported weighted S&P 500 index.

Below let’s take a look at the two different S&P 500 indices.

Click For Larger View: https://schrts.co/rCEXRqsW

The above is depicting the performance returns for the previous year of the two different S&P 500 indices. The blue line is the traditionally reported, weighted version of the S&P 500, while the black line is the much less reported, equal-weighted version of the S&P 500.

Mid-chart we highlight the broadening attempt by collective market participants via our red lines. This attempt began in November of last year.

Note how the blue line went relatively dormant (think sideways price action) while the black line began to put in a nice consistent uptrend. Both then headed south in March with a bottoming out at the end of that month.

The real action began as April unfolded in that both were participating in upward performance trends.

Our red arrow highlights how, yet again, the market went narrow in performance as the blue line (the weighted S&P 500) went full rocket ride, leaving the black line (equal-weighted S&P 500) far behind in comparative performance.

While that was unfolding, Dow Theory, for its part, did not collapse but it has gone relatively dormant in conjunction with other areas of the stock market at large. This while the “AI trade” as it is known, has gone straight up all while the broad market has gone quite narrow, yet again.

The problem with narrowly participating market landscapes is they lead to downside problems, given time. A few handfuls of companies, historically speaking, cannot carry stock market performance alone eternally.

We continue to monitor stock market behavior relative to this narrowness issue. Our concern is if it cannot broaden out and display actual healthiness that is analogous to historical bull markets that it will end its run similar to that of which historical narrow market backdrops have ended in the past. Think much lower in price and trend.

For now, the broad stock market is holding its own.

It would go a long way under the banner of structural vibrancy if it could strengthen, similar to the trend the equal-weighted S&P 500 version displayed in our chart above, in the middle of the time depicted. The broader market was beginning to display a healthy trend but faded after just a few months.

We continue to focus on this storyline and will share accordingly through various angles as near-term weeks and months unfold.

I wish you well….

-Ken from Mind Your Stops

Since the launch of Operation Epic Fury back on February 28^th, we have shared fewer editions than what had been customary up to that point in time.

Through all the noise in the geopolitical landscape since late February, coupled with a high noise level in the socioeconomic backdrop domestically, we have chosen to share less in an attempt to step back a bit and share observations that cut through some of the noise rather than tossing more of it into the proverbial ether.

In an edition just over a month ago we attempted to cut through the noise that price inflation was no longer a thing. Seemingly, anytime price inflation as a topic saw the light of day, it was quickly brushed off as though it was a historical artifact.

In light of ongoing military operations following the launch of Epic Fury, price inflation was entertained again, suggesting it would be a near-term issue - but it would surely be short-lived.

As we shared a month ago and do so again in today’s edition, the problem with the past-tense view of the price inflation issue is that it is an incorrect view.

To be fair and accurate, its growth rate certainly reduced off notably high levels, but importantly, it has continued to print a growth rate above historical levels that would offer that it is a nonissue.

Below we share some additional perspective with updated data since our last edition on this topic.

Click For Larger View: https://fred.stlouisfed.org/graph/?g=1VU55

Above is a ten-year view of the PCE index, which stands for the Personal Consumption Expenditure Chain-type Price Index. We offer this because it is the Federal Reserve’s preferred measure for price inflation.

Importantly, relative to the above chart, we are sharing the PCE index that excludes food and energy. This is known as the core PCE index and is meant to aid in giving a view of what the price inflation trend looks like throughout the pricing structure, without those two more volatile components skewing the underlying price trends.

In light of the aforementioned military operations, anytime price inflation has arisen as a topic of late, the focus is always on energy and how that will be a problem. This always implies that if not for energy and the expectations of its downstream impact, the price inflation backdrop is fine. To the contrary.

In the above chart, we offer two red horizontal lines. The lower line represents the 2% level for this core PCE index. The Fed offers ad nauseam that they have a 2% target level. Per our lower red line, we can see that is a target level that we have not experienced in over 5 years! It gets worse.

The upper red line denotes the 3% growth rate level. Note how in the left portion of the timeline of the chart we had not exceeded the 2% lower red line, while the upper 3% red line was an unfathomable experience.

Turn your attention towards the right portion of the timeline of the chart and note the extreme differences. Per the chart, 3% is becoming more of a baseline experience rather than some unfathomable experience of years previous. Sadly, it gets even worse.

Note to the far right portion of the chart how the most recent update of this data reflects this Core PCE index is putting in a higher high while it breaks higher off of the 3% level. The most recent update covers up through the month of March, whereby it reflects a 3.2% growth rate year/year.

Importantly, keep in mind this is the core PCE index, which excludes food and energy. The reality above discredits the view that price inflation has been a nonissue in 2025 and up through here in early 2026.

An Invitation

To explicitly belabor the above point, I invite you to do a visual exercise with the above chart.

Place your gaze on the center of the chart and let your peripheral vision denote to you the extreme contrast, via the red lines as markers, of the two completely different price inflation experiences to the left and to the right of your center gaze.

It is literally the tale of two completely different price inflation storylines. And yet, supposedly, we do not have a price inflation issue.

As an aside, we will cross talk here in terms of topics; if you wonder why mortgage rates, as only one example, are not moving lower, revisit the above chart. Price inflation is the bane of bond market participants. Ultimately, it is bond market participants who set the cost of capital – think, interest rate – to include mortgage rates.

Onward to our subject Title

Over recent years we have occasionally shared a very long view of price inflation in the United States. We thought it timely to share the long view once again.

Below, we offer a 100-plus year view of price inflation courtesy of Ron Griess over at the Chart Store.

www.thechartstore.com

The above dates back to the early 1900’s for a long timeline perspective. The central observation point of the above price inflation history is how consistent double peaks are when a notable price inflation era initially breaks out.

Follow the red circles, from the initial breakout, to pullback, to another breakout that exceeds the initial breakout, along the historical timeline above. To the far right is our current price inflation era.

How will this era unfold?

As we stand currently, per the initial chart and data shared, we are not off to a good start if we are hoping to negate the above historical price inflation storylines of double peaks.

To be certain, time will tell her story on this. We will share accordingly along the path as the price inflation storyline unfolds.

I wish you well…

-Ken from Mind Your Stops

If we take a big step back and try to remember what was unfolding, as an important central theme within the stock market, prior to the launch of Epic Fury back on February 28^th, we would recall that a broadening stock market landscape had been unfolding since November of 2025.

In the months following the broadening shift back in November, we had shared various perspectives on that important development.

The significance of that structural stock market development was the fact that collective market participants were notably bidding up the broader stock market landscape. Coming out of the significant 2022 market downturn, a broadly performing stock market was sorely absent. This was a historical aberration for a new bull market launch.

Historically, when new bull markets begin after a notable downturn, they are robust and filled with upside performance opportunities across the broad landscape of the stock market.

Post-2022, this was not the case. Rather, the performance was concentrated in select areas of the stock market. Such a market storyline can be thought of as a narrowly performing market.

Historically speaking, narrowly performing market backdrops, given time, are ripe for problematic pricing behaviors, given relatively so few companies are experiencing upside bids in their share prices. Think of this as an 8 cylinder engine whereby only 5 cylinders are functioning properly. Given time, the overall engine will present systemic problems.

Bringing this up to somewhat recent weeks, back in mid-February we shared an edition that continued with our observation of the broadening stock market landscape. For that edition, we addressed what is known as Dow Theory.

At that time, it was quite interesting to be able to offer such a topic because a functioning Dow Theory landscape had also been sorely missing, post-2022.

Dow Theory offers that the stock market is offering a healthy general landscape when either the Dow Jones Industrial Average or the Dow Jones Transportation Average advances above a previous high point.

Importantly, once one of the two eclipses a previous high point, Dow Theory confirmation then arrives when the other joins in by advancing above a previous high point as well.

Keeping this simple, it is all about trend. A healthy market leaves in its wake a series of higher highs, i.e., a defined uptrend. This brass-tax Dow Theory definition was unable to present itself, which offered an additional signal of how narrow stock market performance had been, post-2022.

What was most noteworthy in our mid-February Dow Theory edition was the behavior of the Dow Jones Transportation Average.

We noted how this index had been missing in action, if you will, for four full years! That is a long time of no performance when placed within the context of a general bull market backdrop, albeit a narrow bull market backdrop.

With this edition’s general step-back view of the stock market’s central theme prior to February 28^th, let’s take a look at messaging from collective stock market participants through the lens of Dow Theory, with a particular focus on the Dow Jones Transportation Average, post-February 28^th.

Click For Larger View: https://schrts.co/YNaHQvjS

The above is a 5-year chart presented on a weekly basis for the Dow Jones Transportation Average. The 5-year view gives us some perspective on what has unfolded post-Covid. The weekly chart takes out a lot of daily trading noise, as each bar within the chart represents one full week.

The above is the same chart that we shared in our aforementioned mid-February edition. At that time we emphasized, via our two red horizontal lines, how this important index was unable to trend (think traded in a large range) for four years.

Our small blue arrow drew attention to a new high breakout that had finally occurred, and with that, a positive Dow Theory confirmation signal with both the Transportation and Industrial indices hitting higher highs.

The question then was, could this hold?

This is one of many questions we have been focused on monitoring for our market operations post February 28^th, as uncertainty became the operative phrase for the stock market. Could this Dow Transportation strength hold, in particular against the unknown energy pricing landscape through March and now April.

Per the upper right portion of the chart, we can see a short-lived dip below the red line whereby it was depicting a failing new trend attempt. Most interesting was the attempt at a trend failure, which then course-corrected quickly and aggressively, whereby it reasserted dominating trend strength since.

In fact, per the chart, we can clearly see the rapid trend reacceleration the transportation index has put in, which has easily eclipsed the previous high point from our mid-February edition. This is impressive pricing behavior for this important index within the Dow Theory signal.

Interestingly, the laggard is now the Dow Jones Industrial Average in that it has, to this point, been unable to attain its previous high point of 2026, let alone exceed it.

Regardless, the Dow Theory signal that we presented back in mid-February has hung in there quite well, all things considered, since the geopolitical upheaval began on February 28^th.

For its part, the Dow Industrial Average, as of this writing, is less than a thousand points away from its previous high point. Percentage wise, that is not far away.

The ongoing observation point, through the Dow Theory lens, is whether the Industrial Average will be able to attain its previous high point and then exceed it, whereby it would then join the Transportation Average with a new high breakout.

Through this, if it can occur, it would then continue to point to a Dow Theory confirmation signal that walks us back to a reassertion of a broadening stock market backdrop. Time will tell her story on this front.

For now, all things considered, Dow Theory has hung in there pretty well over the previous couple of months.

A Dow Theory confirmation signal, from here, would be a component of signaling participants are back on the broadening theme they put in place back in November.

I wish you well….

-Ken from Mind Your Stops

Over the last several years we have chronicled the backdrop price inflation storyline from nearly every conceivable perspective. No matter how we sliced it, price inflation was a systemic issue.

As a citizen, you already know this. What about in more recent time?

Narratives built and consistently iterated and reiterated, in particular from various policymakers in D.C., have offered nearly ad nauseam that price inflation was conquered and finished off nearly a year ago. The topic, as a topic, is a non-topic, if I understand the narratives correctly.

Regardless, price inflation is a topic, regardless of X narrative(s) offering that it is nothing but a historical topic, at best.

Importantly, very importantly, this is before the most recent war. What has seemingly seeped into the collective narratives, relative to price inflation, is that the war will bring higher prices, but those will be temporary.

This implies, again, that indeed price inflation had been taken care of, such as the narrative(s) have offered. It was a thing, then it was finished off, and it will be arising to some degree again, but that too will be finished off quickly, post-war.

The problem with this is the data has not been cooperating with the narratives. (This is always the problem with narratives eh, pesky reality gets in the way of a good storyline.) In particular, when we view the Federal Reserve’s long-standing favored measure of price inflation.

The Personal Consumption Expenditure Chain-type Price Index has been their go-to price index for many years. There are certainly many other price measures to reference, but this is their go-to.

We have delved into their go-to index in previous editions, along with a plethora of other price measures. For today’s edition we’ll look at the core index for Personal Consumption Expenditures (PCE).

The core index is the PCE index without food and energy costs included. This is called a core measure because it extracts out the more volatile components, such as food and energy.

This is meant to aid in giving a view of what the price inflation trend looks like throughout the pricing structure, without the volatile components skewing the underlying price trends.

It is here, as well as in various other price inflation measures, that we can see the data is not cooperating with X narratives relative to this topic.

Click for Larger View: https://fred.stlouisfed.org/graph/?g=1TwfT

For some broad historical perspective, the above chart starts in 1960 and walks us up to the current day.

To emphasize how stubborn price inflation has been throughout our current price inflation era, dating back to 2021, we inserted a red horizontal line beginning in the early 1990’s.

Think of this red line as a well-established ceiling whereby this price measure was clearly unable to penetrate, or even touch, until our current price inflation era, whereby it easily shot through it to the upside.

In addition, we have added a red circle to emphasize the more recent behavior. The encircled period dates back to January of 2024 to the current day. Yes, two-plus years of time whereby the growth in this core price index has refused to trend lower, while in recent months it has begun to trend upward again.

We emphasize growth because it is far too easy to see the declining rate of growth and interpret it as a decline in prices. Let’s not forget, the decline from peak levels merely reflects that the growth in prices is lower than what it had been at its peak growth rate.

As the above measure stands, this PCE core price index is registering a 3.1% increase in year-over-year prices. This is quite a distance away from the Fed’s well-stated 2% price inflation target. Hence, why we insinuated above that X narratives’ offering price inflation is a non-topic is pure fantasy.

Importantly, all the above data reflect pre-war price growth trends. When, and if, you hear that prices are rising again because of the war, you may want to mentally consult the above data to realize prices had already been rising prior to the war.

The bottom line, as stated above, price inflation trends have not disappeared. The Fed has cut their benchmark Fed Funds rate six times, beginning in September of 2024 up to the current day.

Along that path, for our part, we had questioned the price inflation evidence to support a rate-cutting campaign. History offers cutting rates during a price inflation era, but assuming the price inflation issue had been dealt with does not end well.

This certainly was not lost on collective bond market participants as they raised various treasury notes and bond interest rates while the Fed was cutting. This is their way of offering disagreement with the policy approach of rate cuts before price inflation was fully extinguished.

The coming months should offer quite an interesting storyline across the plethora of price inflation measures. Right now, with the Fed’s favored measures not cooperating at all relative to their 2% price inflation target, those who hope for additional Fed rate cuts may be disappointed.

Then again, if more rate cuts do surface while price measures are not cooperating, we all may be disappointed, as citizens, as we deal with unfavorable price trends downstream. Cutting rates to curtail a price inflation era has proven to be nonsensical, historically speaking, and is seemingly proving to be the case in our current era.

I wish you well….

-Ken from Mind Your Stops

If you are a consistent reader of our editions, perhaps you noticed the absence of our emails hitting your inbox of late. To be precise, February 26^th was our last edition. This turned out to be just two days prior to the launch of Operation Epic Fury.

From that launch date, visibility for collective market participants, across the board, went very murky. Said visibility also went murky for those who offer economic prognostications.

Regardless of the chosen focus, from markets to economic forecasting to even geopolitical analysis, downstream visibility quickly became quite blurred.

With this, for our part, offering a topic since our previous published edition seemed irrelevant in light of the above visibility issue. Even referencing collective market participant behaviors across various markets seemed irrelevant, realizing one new headline could change that perspective in a few minutes.

With this backdrop, we have found ourselves soliciting the help of one of our favorite questions: What do we know?

You see, when everything is murky, this question offers centering and some level of grounding. It is a baseline, rock-bottom type of question.

Through this question, it allows us to walk away from what seems like an impossible situation when working to project forward scenarios to an endpoint of drilling them down to market(s) positioning, to something at least a bit manageable.

The question customarily leads to being able to quantify more than we initially would think in light of the general confusion radiating from the large-scale issue at hand.

Below we share one answer that surfaced in our questioning, which we have actually addressed throughout numerous editions over recent years. We have addressed this topic through various angles to help in presentation: thinking different angles may aid in driving this reality into the conscious awareness of anyone reading.

Interestingly, the events of recent weeks further drive home our observation of recent years relative to this topic.

Click For Larger View: https://schrts.co/MaAsvDHz

The above dates back to the spring of 2024 up to the current day. The red line is the Federal Reserve’s fed funds rate. This rate is set by the Fed’s interest rate policy committee.

The black line is the benchmark 10-year treasury note shared on a yield basis – think interest rate level. This rate is set by collective bond market participants via their daily market operations.

In the left portion of the chart, September of 2024 to be precise, the Fed cut rates for the first time in this cycle. Our blue arrow denotes the day of the ½ point cut back then. Our blue circle below it denotes the level the 10-year treasury was at on that day.

You can visually see the clear and continued reduction in the Fed’s benchmark rate as time moved on via the red line. You can also visually note, to the far right of the chart, how the blue circle for the 10-year treasury (black line) currently resides at a higher level than what it was back in September of 2024.

The bottom line of this is while the Fed cut rates again and again, for their part, collective bond market participants have actually increased the interest rate of this key benchmark treasury note.

This continues to underline the fact that those who believe the Fed is the key to interest rates, across the interest rate spectrum, are mistaken. The most important aspect to the broad interest rate storyline remains with collective bond market participants.

If they are not willing to bid treasuries up in price, which results in lower yield (think interest rate), then broad interest rates will not be moving lower. Since the Fed began cutting rates back in September of 2024, bond market participants have not been willing to chime in with the Fed’s direction of rates.

Mortgage rates, for example, take their directional cue from benchmark treasury securities such as the 10-year treasury note. With this in mind, since the Fed began cutting rates back in September of 2024, the national average 15-year mortgage rate is also higher now than it was back in the fall of 2024.

If you hear someone offer how the Fed needs to cut rates further so we can get mortgage rates lower to help potential home buyers, we invite you to recall the above relationship chart as a guide to what really drives mortgage rates.

To impress bond market participants, if you will, a starting point would be for the issuer of treasury securities (think treasury department, i.e., government) to get serious about the fiscal policy that has devolved in recent years, to include up to the current day, of $1.5 to $2.5 trillion annual budget deficits as normal operations.

(Historically, those type of numbers were registered during extreme financial crisis, not as a fiscal norm.)

Until then, do not be surprised to see what we have been seeing in the above chart. That is, bond market participants that are less than enthusiastic about bidding treasuries higher on a notable price trend, which, in turn, would push the benchmark treasury interest rates notably lower.

At a time of geopolitical upheaval, “flight to safety” is an operative phrase that has unfolded in various markets. Interestingly, and underlining the above, bond market participants have not included treasuries as part of the flight to safety trade.

In fact, in recent weeks, said participants have actually pushed treasury rates higher by selling off treasuries rather than looking at them as a safe harbor for capital. You can see this if you reference the above chart again and look to the far right at the black line’s behavior in the month of March.

As we have offered in previous editions, if you really want to know what general interest rates are doing, watch the 10-year treasury note, which will inform you of collective bond market participants’ view of the general landscape. Through that observation, as an example, you will also be informed of the expected path of mortgage rates.

I wish you well…

-Ken from Mind Your Stops

Within a late summer edition of 2025 followed by an edition in the fall of 2025, we shared how collective stock market participants were displaying concerns for the employment market via the payroll processors.

The payroll processors are quite sensitive to the health of the general employment market in light of their core business function being at the epicenter of servicing employed personnel.

In light of market participants’ obsession with pricing markets today, in light of what they see downstream on the economic timeline, we found the behavior of the processors’ stock prices worth noting at those times.

In the front part of 2025, two long-standing payroll processors were clear stock market leaders.

Underlining their market-leading resilience, when the stock market went hard south in March and part of April, these processors stood out in that they barely went negative on their year-to-date performance at that time.

It was interesting to observe their resiliency in that collective market participants were clearly not concerned about the prospects for the downstream employment market, as they were extremely reluctant to trade their share prices lower. This, while large swaths of the stock market fell with ease.

Tariff implementations back then had collective participants concerned for general share prices, but not for the payroll processors.

It was as though they were signaling that the reindustrialization attempt with tariff implementations, or the onshoring attempt, as it is also referenced, would be a net positive for the general employment landscape, given time.

We have continued to observe how market participants are trading these two well-established payroll processors’ shares and continue to be amazed at the tremendous turn in the pricing of their shares over the previous nine months.

To go from tremendous resiliency in the face of notable downside stock market pricing to then being tremendous underperformers within a few months, all while the general stock market landscape improved notably, is a rapid change in tone in how their shares are being priced by market participants.

This is a multi-decade change in behavior

Over recent decades the payroll processors have lined up quite well with the general trends of the stock market. As the stock market would ebb and flow, the processors would trade accordingly.

This relationship was never lined up perfectly, but that is to be expected. It is the general trend of them that has stood out through recent decades. With this long-standing trading relationship solidified for such a long period of time, their divergence stands out notably.

Below we look at two charts that underline this divergence.

Click For Larger View: https://schrts.co/daAnceaG

Click For Larger View: https://schrts.co/PebwSsQY

Both of the above are monthly charts that date back 30 years to 1996. In both charts the black line represents the S&P 500, while the red line represents each payroll processor.

In the first chart, the red line is Automatic Data Processing. In the second chart the red line is Paychex. As a side note, we are using both as tools for this edition. We are not advising a buy or a sell on either of these companies.

Note the general trending correlation of both over the decades to that of the S&P 500. At times there is notable outperformance by the payroll processors, be it to the upside or the downside in that they would not go down as much as the S&P 500.

Our focal point for this edition is the far upper right of each chart.

We have noted the tremendous divergence in pricing behavior of these two long-standing payroll processors to that of the S&P 500 via our blue trend arrows.

The divergence has been stark in contrast as the S&P 500 has trended upwards while the processors have trended down since the summer of 2025. This continues in the current day.

Below, let’s take a look at this divergence in closer detail.

Click For Larger View: https://schrts.co/PnYPFZMD

The above is a returns chart that dates back to June of 2025 for the two payroll processors. The blue and red lines are the processors, while the black line represents the S&P 500.

The trading relationship of the processors to that of the stock market for the past 30 years gives the chart above its “wow” moment, if you will. To see this level of negative divergence is eye-opening.

Since June of 2025, think nine months, while the S&P 500 went on to solid double-digit growth, the processors are down 33% and 40% each.

Per the 30 years of trading history, we have not seen collective market participants display such a concern for the payroll processors (relative to that of the broad stock market), and, through them, a concern for the prospects of the employment market such as we are seeing in recent time.

Market participants are displaying a consistent disinterest in these companies while simultaneously choosing not to display a general concern for the stock market at large.

This is interesting in that if said participants had a notable concern for overall economic activity, the stock market at large would at least show some deterioration.

Does AI need payroll processing?

Most are well aware of the growing realization that Artificial Intelligence (AI) is here and that this technology, like most technological progress, will be disruptive. In this case the disruption can be, and seemingly is expected to be, very disruptive to a vast array of areas within the broad employment landscape.

By most accounts, this technology will be impacting nearly every job classification, given time. How much time? That is unanswerable with any degree of certainty.

AI represents an unknown and yet seemingly vast labor pool ready to compete for employment opportunities. Companies at large are certainly incentivized to employ AI, realizing that payrolls are a significant line item within their profit & loss accounting statements.

In a Financial Times interview recently, speaking to our “how much time” question above, Microsoft’s AI CEO said most white-collar jobs can be fully automated within the next year or two.

Time will tell her story on this, but for now the above divergence displayed by market participants toward payroll processors, relative to the behavior of the broader stock market, is offering their caution toward the employment landscape. The AI question is certainly playing a role in participants’ reluctance to bid these companies higher.

The obvious feedback loop question is, if the employment market turns upside-down whereby employment growth (for humans) is marginal, how does the economy hold up?

Through this question we cannot help but wonder if the payroll processor pricing behaviors (displayed above) are a very early sign of things to come for the stock market at large.

This is not a downstream expectation as much as it is a curious contemplation when thinking of the potential ability of AI technology to massively disrupt the employment landscape.

If this unfolds into decimating large swaths of employment opportunities, that level of disruption will show up in the broader stock market.

As the old adage goes, may you live in interesting times. We all are certainly living in interesting times eh.

I wish you well…

-Ken from Mind Your Stops

In today’s edition we will continue to look within the stock market landscape, continuing the general theme of recent editions.

We have been sharing the ongoing stock market leadership transition that kicked off in earnest back in November. Post-2022 in particular, technology as a sector dominated the stock market backdrop in performance.

The broader stock market, comparatively speaking, was largely ignored by collective market participants post-2022. While this began to change in November, it left with it an overriding question as to whether said change could last.

We have seen short periods along the path of recent years where a similar transition unfolded but would then disappear as quickly as it began. Prior attempts had no staying power. It appears this attempt has staying power, and this is notable.

At the same time, there continues to be a fair question emanating from collective market participant behavior as to whether this leadership transition will continue to unfold smoothly or whether it will bring with it overall stock market volatility that will be more than a minor bump.

First, let’s take an updated look at the described transition since November directly below.

Click For Larger View: https://schrts.co/xaadnVFQ

The three vehicles we are using in this edition to depict the transition to new leadership are the Dow Jones Technology Index (red line), the Dow Jones Industrial Index (black line), and the S&P 600 small company index (blue line.)

The Dow Jones Industrial Index (black line) should not be confused with the well-recognized Dow Jones Industrial Average. The Industrial Index above encompasses more industrially oriented companies.

We shared the above within an edition at the beginning of February. Underlining this leadership transition attempt, the above disparity has increased since then. This offers both staying power attributes of this leadership transition, while simultaneously offering a cautious concern in light of this increased disparity.

As we have offered within recent editions, when deeply established leadership within the stock market begins to be rotated out in favor of new leadership, it typically brings with it volatility at a minimum.

Worse, it is not unusual for a leadership transition process to bring with it notable stock market tremors to the point of impacting the stock market at large. Think of a backdrop whereby the stock market as a whole is negative, not by just a few percent, but rather, down some level of double digits.

Unseating deeply entrenched leadership typically does not offer a smooth ride.

Importantly, there is no certainty that this will be the case just because history offers it as a storyline of leadership transition. This is why we continue to focus on this transition process, while simultaneously keeping in our minds that this process can get messy.

In light of the above disparity actually increasing in recent weeks, it is keeping us focused on this transition question.

Directly below, let’s look at broader stock market indices to get a sense of how this is playing out using well-recognized stock market gauges.

Click For Larger View: https://schrts.co/ktMsbKaj

The above also dates back to the beginning of November up to the current day. The black line is the equal-weight S&P 500, while the blue line is the traditionally reported, weighted S&P 500 index.

Speaking to the leadership transition, it is clearly showing up in the performance differentials of these two S&P 500 indices.

The weighted version (blue line), which places outsized weight on select companies that are predominately technology oriented, is barely positive in performance since the beginning of November.

Meanwhile, the equal-weight S&P 500 index (black line) is trouncing the performance of its weighted cousin. This represents a major change in the behavior of the stock market structure, in particular post-2022.

In light of technology companies generally incurring poor stock market performance since November, they are dragging down the well-recognized weighted S&P 500, in particular when compared to leading areas as offered in our first chart, along with the equal-weight S&P 500 (black line) in the above chart.

Further deterioration in technology performance within the stock market, if it continues to occur such as is depicted in our first chart, will drag with it the weighted S&P 500, and, through this, can have a negative contagion impact throughout the stock market.

While this leadership transition is good for the stock market structure being that it represents a much broader market landscape and a healthier bull market environment, if technology gets too heavy, too fast, risks increase that said structure will also incur near-term drawdowns.

For our part, because we never lose sight of the fact that this stock market is epically highly valued when viewed through any valuation lens, through any historical timeframe observed, we are hyper-vigilant on the above leadership transition and the risks it can bring with it in light of prior leadership (technology) being bid down such as it is.

Highly valued markets can become unruly quickly when structural pegs, if you will, are repositioned.

Reduced to simplicity, below we will keep it as simple as possible using an index as a guidepost for the new leadership.

Click For Larger View: https://schrts.co/xwmEvRwm

In our previous edition we shared the above chart in light of its participation in the Dow Theory approach toward market analysis. The above is the Dow Jones Transportation Average.

This area of the stock market has been particularly ignored over the previous four-plus years. It has notably come to life as 2025 evolved with its November-to-current-day run leaving it as a shining star within the stock market structure. It has been a clear leader; stronger than even the leaders shared in our initial chart.

The red horizontal lines denote the trading range this average has been trading in over recent years.

The breakout above the red line was a very important behavioral statement by collective market participants. They bid this previously ignored area of the market up to and through new highs. Our blue arrow highlights the powerful breakout, and with it emphasizing a clear behavioral change.

Keeping it simple here, this leadership space should be able to hold its breakout level. The top red line should hold as a support, whereas previously it had been a ceiling that it was unable to penetrate.

If we see the market overall pullback, this Transportation Average and its behavior will offer important information relative to this overall leadership transition that we have been addressing here and in recent editions.

This leadership transition should prove to be very interesting as the near-term weeks and months unfold.

I wish you well…

-Ken from Mind Your Stops

The bulk of our 2026 editions have addressed the structural shift within the stock market that began in mid-November of 2025 and then picked up in earnest as we crossed into 2026.

By the close of last week we had another indicator chime in on the developing shift to a broadening theme within the stock market.

The indicator is the long-standing stock market tool known as the Dow Theory.

Dow Theory offers that the stock market is offering a healthy general landscape when either the Dow Jones Industrial Average or the Dow Jones Transportation Average advances above a previous high point.

Importantly, once one of the two eclipses a previous high point, Dow Theory confirmation then arrives when the other joins in by advancing above a previous high point as well.

Keeping this simple, it is all about trend. A healthy market leaves in its wake a series of higher highs, i.e., a defined uptrend.

A truly healthy market, let’s say, a robust and strong, no-doubt-about-it bulled-up type market, will leave in its wake a series of higher highs across numerous well-recognized stock market indices.

We have been addressing this general topic relative to the stock market nearly anytime we have shared an edition on the stock market, in particular since the post-2022 market downturn.

As we have shared many times, post-2022, the stock market has not been robust and strong when viewed through a broader stock market lens.

It was a narrow market environment whereby a few handfuls of companies played an outsized role in pushing various market indices higher, most notably, the weighted version of the S&P 500. This is where some companies are weighted heavier than others in the construction of the weighted S&P 500 index.

This can give misleading signals relative to the overall health of the stock market at large, especially when the larger weighted companies are thriving handsomely. This has been the case post-2022.

Moving back to our central theme of Dow Theory, it too has offered the lack of a truly strong and solid bull market since the 2022 lows.

Again, to emphasize, we are speaking structurally here for the whole of the stock market, not about whether there have been X areas of the stock market that have offered performance opportunities.

Let’s take a look at messaging from collective stock market participants through the lens of Dow Theory.

Click For Larger View: https://schrts.co/IQYvnAxX

The above is a 5-year chart presented on a weekly basis for the Dow Jones Industrial Average. The 5-year view gives us some perspective on what has unfolded post-Covid. The weekly chart takes out a lot of daily trading noise, as each bar within the chart represents one full week.

The above can be viewed and thought of as the anatomy of a trend process over the previous 5 years.

We have inserted a few lines to aid in a visual understanding of what has been transpiring in this period of time.

Our red horizontal line begins as the post-Covid high point was put in, which morphed into the notable downturn in the stock market, circa 2022.

For its part, the Dow Jones Industrial Average bottomed in late 2022 and then struggled through 2023. Our blue arrow highlights the launch point of the Dow actually putting in a higher high by early 2024, which proceeded as a trend.

Our black horizontal line highlights the end point of the Dow’s trend at that time, which walked us into the notable drop of early 2025. The 2024 trend was erased rapidly in early 2025.

This takes us to current messaging from market participants.

As early 2025 turned to mid-2025, the Dow Jones was back to working its uptrend. This was confirmed as a new uptrend when it surpassed the black horizontal line, whereby, rather than being a price ceiling as it had previously, it became a price floor.

From there the Dow Jones Industrial Average continued to be on-trend as it posted higher highs, as highlighted by our red uptrend arrow.

This takes us to the Transportation Average.

Click For Larger View: https://schrts.co/gTZcRzvW

The above is also a 5-year weekly chart to match the layout of the previous Industrials chart.

Overall, the Transportation Average is more challenged than the Industrial Average. Post-Covid, the Transportation Average was posting a series of higher highs. As we entered 2022, the Transportation Average also turned south.

Unlike the Industrial Average, the above Transportation Average had been unable to put together any trend since the post-Covid uptrend, as it remained in a large price range. Our red horizontal lines highlight the large range from late 2021 up to last week.

By the end of last week, a notable shift in its pricing behavior occurred with a long-awaited new high breakout.

The Transportation Average had struggled for over four years, of which it had been trendless until last week’s close, which reflects a solid new high. This is a notable change in behavior, as it has ended four-plus years of struggling price behavior.

Dow Theory

Reduced to simplicity, Dow Theory is about trend and trend confirmation from a sidekick index.

Simply, one of the two indices needs to put in a higher high, i.e., an uptrend. Once established, the other index confirms the trend by also putting in a higher high, whereby its own new high trend has begun.

When both the Industrials and the Transports are trending, we have Dow Theory confirmation of a healthy, ongoing bull market.

In various editions over recent years we have addressed Dow Theory and the lack of a positive Dow Theory signal.

By the end of last week, for the first time in quite a while, we saw collective stock market participants continue with the broadening stock market storyline via an additional signal of structural strength with the above Dow Theory confirmation.

Does this offer stock market nirvana from here? No.

For our part at least, no one signal offers clear sailing for as far as the eye can see.

What this does offer is a change in behavior via the Dow Theory, which we have not seen in over 4 years. That is a notable change.

This, along with other behavioral changes, such as we have noted in recent editions, offers the stock market, structurally speaking, continues to broaden out in its participation, and, through this, improve its structural health to a degree we have not seen post-2022.

This is important messaging from collective stock market participants!

I wish you well...

-Ken from Mind Your Stops

In our first edition for 2026, we addressed the stock market generally while specifically focusing on the broadening out of the market landscape.

Within that edition, as well as strewn throughout many editions in recent years, we addressed how the stock market, if it were an 8-cylinder engine, could be described as operating on 3 cylinders.

Simply, it was functioning (think bull market), but it could hardly be described as a rock-solid bull market with broad participation whereby large swaths of companies were charging higher on strong trends.

Rather, a few handfuls of companies, dominated by technology names, were roaring higher, which in turn made well-recognized indices, such as the weighted S&P 500, appear as though the stock market as a whole was strong and vibrant, if not on a roaring uptrend.

In the opening edition for 2026, we offered collective market participants were signaling a rotation attempt that was evolving to look like a stock market that was broadening out. Broader stock market landscapes, whereby large swaths of companies participate in healthy trends, are far more structurally healthy market environments.

The problem is, using history as a guide, when entrenched stock market leadership starts to take a backseat to other areas of the market (think rotation), the process often brings with it volatility for the market as a whole.

While it can be a positive development, that is, in this case, a broadening storyline, it can be a precarious process that brings downside volatility for the overall stock market. Succinctly stated, leadership, historically speaking, dies hard.

Back to our opening 2026 edition, within it we used three S&P indices to visually share what has been unfolding since early November.

Today, we will home in more specifically to the technology space along with two other areas that represent the broadening theme. As an aside, there are many ways to visually share the described rotation attempt, so below is certainly not the only way to do so.

Hence, why in our first edition of 2026, we took the approach we did at that time, and now in this edition, we are using a couple of different vehicles to address said rotation attempt.

Context is Important

Click Link For Larger View: https://schrts.co/GwyrzcRs

We have shared endlessly that post-2022, and its notable stock market downturn, that the fresh bull market acted as a historical aberration. Simply, as described above, it was lacking in broad participation. Think of an 8-cylinder engine operating on 3 cylinders.

The above performance chart depicts part of this storyline as it dates back to the beginning of 2023 up through the current day.

The three vehicles we are using to depict the narrow stock market landscape of recent years are the Dow Jones Technology Index (red line), the Dow Jones Industrial Index (blue line), and the S&P 600 small company index (black line.)

As an important aside, the aforementioned blue line, the Dow Jones Industrial Index, should not be confused with the well-recognized Dow Jones Industrial Average.

The Industrial Index above encompasses more industrially oriented companies.

Let the chart speak for itself. Note the tremendous outperformance of the technology index (red line) relative to the other two vehicles. It outpaced the Industrial Index by a factor of three while outpacing the small company index by a factor of five.

Clearly, as offered, stock market leadership post-2022 has been technology hands down!

Also as offered, collective market participants are offering a change attempt, or think, an attempt at rotating to a broader market environment.

If you take an additional peek at the above chart and look to the far right of each vehicle via the red vertical line we inserted, you can see the rotation attempt unfolding as the November downturn quickly evolved into rotation and an attempt at new leadership. Note the blue and black lines trended upwards, while the red line has struggled sideways-to-down.

Will this rotation attempt stick?

This is the central question and observation point that we shared in our first edition for 2026, which we continue to ask and monitor closely as we have moved into the second month of 2026.

Things are getting a little squirrelly in recent times as the technology space continues to lose a bit of its luster, and in so doing, speaking to our central concern, it is attempting to put a chink in the process of rotation to a broader market environment.

Let’s now home in on this storyline in recent months.

Click For Larger View: https://schrts.co/njCsjYmN

Above are the same three vehicles as in our first chart, with the color themes continued. Our chart is quite condensed on the timeline relative to our first multi-year chart. Above is November 2025 through the current day, as of this writing.

Note the tremendous change in behavior of recent months. The technology index, the red line, has been consistently struggling in performance, with it registering a negative 4.5% return since November 1^st.

For the venerable technology space of recent years, a three-month run of negative performance seems nearly impossible. In particular, if you read headlines up to the current day. As is often the case, headlines and reality can many times be miles apart.

On the broadening front, note the tremendous outperformance of the previously lackluster areas of the industrial space and the small company index shared in our first chart. Since November 1^st, they have been trouncing the technology space in behavior and performance.

While technology is posting losses since November 1^st, the industrial and small company spaces are posting 9% (rounded) positive performance. This is unheard of behavior relative to recent years.

Will it stick?

Yes, we continue to ask as this as this is our central question and observation point.

We emphasize, through redundancy, that rotation, historically speaking, typically brings with it downside volatility for the overall market.

Technology stocks are getting more and more concerning in their performance behavior, including in recent days. If this continues into a downside trend for the technology space, this will clearly show their leadership within the stock market performance landscape is turning over.

If so, what will that look like for the broadening market storyline of recent weeks and months?

For our part, we are watching this process closely and continue to chronicle the process here in these editions. In our view, relative to the stock market, it is the central observation point at this juncture on the timeline and speaks volumes to asset allocation within the stock market. We will continue to share accordingly.

I wish you well….

-Ken from Mind Your Stops

The cost of capital, i.e., the price of money, is the most important price of all within an economic system.

Where that price is currently (think interest rates), or in recent time, offers relatively little information and impact compared to a broader view of such price. The big trend - or what we have labeled “The Megatrend” in past editions - embeds key and important information.

If interest rates are generally double digits in an economic system, but the structural backdrop, along with the trend itself, offers those will be withering lower, given time, said high cost of money will not be as burdensome for the system at large in light of the lower trend.

Conversely, if an economic system has been immersed in low interest rates for a long while, and the masses fully expect the cheap money to continue, the economic system at large will have a slow but steady adjustment process to work through.

Interestingly, this slow but steady socioeconomic adjustment process is unfolding in our current era.

What the unexpected uptrend in interest rates (price of money) represents is a complete change from the multi-decade entrenched view that interest rates can only be low, and, in time, only move lower, as though it is a law.

Collectively, we are moving toward recognition that indeed a high-interest rate environment is occurring, and yet, collective belief holds on that it will not have staying power and hence, will change “soon.”

Our current era is evolving through the typical collective disbelief of significant trend change, in particular when the trend change is something as socioeconomically impactful as higher interest rates.

Ultimately, this will evolve into the masses psychologically adjusting to not only an acceptance of such, but an expectation that this is the way it is, and will continue to be, for a long while. A new entrenched view will emerge, given time.

The stages of trend recognition and acceptance, on a collective psychological basis, do not unfold quickly.

Importantly, the process of collective recognition on through to expectation is a grind, of which we collectively continue to grind through in this current era. We will reach the collective point of ultimate acceptance that a new megatrend of high interest rates did indeed begin – ah, 5 years ago.

This is Really Happening

Let’s move from general theory and observation of megatrends, and the inherent collective psychological adaptation process of such, and onto the reality we have been living that interest rates, i.e., the price of money, has ended their multi-decade megatrend of lower and lower levels.

We have all evolved to the expectation that interest rates can only, and will only, stay low being this has been the case, on a trend basis, for four-plus decades. This entrenched collective belief system dies hard, while reality itself is continually presenting it is a mistaken psychologically held view.

Click For Larger View: https://schrts.co/XZNwziMD

We have shared the above chart in various editions over recent years, and for my part, personally, I have been monitoring this chart for the previous fifteen, if not, twenty years.

The motive for me doing so always fell under the view that when this megatrend changed, and it would change, being that all trends ultimately change, it would change all that we had become socioeconomically accustomed to through the collective expectation of ever cheaper money, i.e., lower interest rates.

The above chart is the benchmark 10-Year Treasury note, on an interest rate basis, dating back to the late 1970’s.

The red down trend line clearly identifies the multi-decade trend of ever lower rates.

As visually depicted, this downtrend ended as rates easily moved up through the (red) downtrend line and remain at elevated levels in the current day.

Our short blue horizontal line was inserted when offering and following this storyline in an edition from nearly three years ago. The point of that blue line was to act as a marker that these rates, if they were to show any sign of containment, would hold below the blue line.

As depicted, they moved even higher, and rather than it acting as a ceiling, it has become a floor, which has held as a low point, not a high point, as these rates have elevated and held high from that time nearly three years previous.

As a side note, it will be easy to interpret this as an opinion shared from us and how we see the interest rate world, if you will. This is not the case.

We invite you to trust your eyes. We are merely sharing a message from collective bond market participants (the smartest market btw), which has been unfolding for over five years. The above megatrend change is not an accident. The smartest market did not suddenly become stupefied.

But the Fed will fix this

Part of the entrenched view of the multi-decade downtrend in interest rates is that the Fed is the ultimate determiner of interest rates. This is false. Bond market participants are the ultimate determiners of interest rates.

The Fed can choose to lower their short-term rate, known as the Fed Funds rate, but there is no law that states bond market participants must follow the path of the Fed’s directional change in their benchmark rate.

A case in point dates back to September 18^th of 2024 and on up through the current day. Back in September of 2024, the Fed began a new rate-cutting cycle.

In that cycle, from September through December of 2024, the Fed cut their Fed Funds rate by one full percent. After a pause in rate cuts for the bulk of 2025, they continued with further cuts in September through December of 2025.

All told, from back in September of 2024 on through here to early 2026, the Fed cut their Fed Funds rate by 1.75%, or 175 basis points.

For their part, collective bond market participants consistently sold bonds off, to include the above charted benchmark 10-Year Treasury notes. As bond participants sold these Treasuries, all while the Fed was cutting, prices moved lower, which in turn, increased the 10-Year Treasury Note rate.

(When bond prices move lower, their interest rate moves higher.)

Yes, the Fed reduced their benchmark rate by almost 2%, while bond market participants increased the 10-Year Treasury note rate.

With this, the Fed Funds rate was dropped from 5.5% down to 3.75% from September of 2024 through the most recent Fed cut in December of 2025.

On September 18^th, 2024 (the beginning of the Fed’s cutting campaign), the benchmark 10-Year Treasury note was yielding (think interest rate) 3.6%. As of this writing, the 10-Year Treasury is now at 4.25%.

Bond market participants have pushed this interest rate up by more than half of a percent (65 basis points to be precise) all while the Fed cut their benchmark rate by 1.75%.

Mortgage rates have a correlation in trend to benchmark Treasury securities. During the aforementioned Fed rate cutting cycle, the 15 Year Fixed National Average Mortgage Rate has also increased.

Back in late September of 2024, the above mortgage rate was quoted at 5.15%. Today, the fixed national average is 5.49%. Mortgage rates have risen by 3/8% or 34 basis points, to be precise. This, while the Fed cut by 1.75%, or 175 basis points.

Now, who controls interest rates?

Collective bond market participants control interest rates.

Media sources can discuss and focus all day long on whether the Fed will cut, raise, or pause, at any given time.

Our true focus should be placed squarely on the bond market and what they are signaling via their trend characteristics if we really want to know what direction interest rates are moving toward.

They continue to message that the high rates they put in place, via daily bond market trading, remain stubbornly in place. With this, they are offering little expected change is on the horizon via the lack of trend characteristics that would offer lower rates are imminent.

If you really want to have a sense of where general interest rates are heading, directionally speaking, watch the Treasury bond market for insight.

I wish you well….

-Ken from Mind Your Stops

In our previous edition we shared how collective stock market participants were improving the structural health of the market by broadening out its participation.

This process began after the quick but short-lived drop in the stock market back in mid-November. Since then, the broadening trade has been in place and increased its momentum in early 2026.

Part of this broadening storyline has been small size companies (a.k.a. small caps) as they have been putting in actual outperformance since this shift in November. To offer small companies are actually outperforming seems to lean toward telling falsehoods.

It has been a long while since small companies have been able to claim a spot atop the leaderboard within the stock market structure. So long in fact that trust in this shift has us questioning its validity and its stamina to maintain itself.

We remind ourselves, upon sharing such a view, that this type of sentiment sounds like perfect bottoming psychology. To be clear, it is not that small companies have been in a long downtrend; rather, they have been in a long period of marginal participation all while the narrow stock market went about trending higher and higher.

Let’s get perspective via small company trading behavior in recent years just below.

Click For Larger View: https://schrts.co/ZyKFesVS

The above is the S&P 600 small company index dating back to early 2019. Our blue arrow notes the expected behavior of the S&P 600 as the stock market quickly ascended off its Covid lows.

Historically speaking, small companies lead the way in performance, in particular when shooting off prior notable downturns such as is displayed above at the beginning of our blue arrow. From that low point, the S&P 600 small company index handily outperformed both the weighted and the equal-weight versions of the S&P 500 by the end of 2020.

While the S&P 600 increased by 63% from the highlighted low point to the end of 2020, the equal weight S&P 500 increased by 53%, while the weighted S&P 500 increased by 45%. These types of results point to traditional strong and robust bull market activity coming off of notable lows.

That is, fresh bull runs are historically strong in broad participation, a characteristic that has been sorely missing in the stock market landscape coming out of the 2022 lows.

In early 2021, the S&P 600 small company outperformance characteristic began to significantly change and has been in place since that time.

Our red horizontal line begins at the high-water point for the above index in early 2021. Note the lack of any meaningful trend for the follow-on years. There would be fits and starts, only to end up trendless.

To the far right of the chart, where our red line ends, is where our most recent trend attempt began. This is also where the S&P 600 small company index began to assert performance leadership.

Below we isolate 2026 and the outperformance of the S&P 600 small company index.

Click For Larger View: https://schrts.co/eJnWUDxn

The above is a baseline chart with the S&P 500 (weighted version) acting as the baseline while the S&P 600 index reflects its performance relative to the S&P 500 baseline.

The outperformance of the S&P 600 has been positive from the very beginning of 2026 and has built on its momentum as the month of January has pressed on.

As of this writing the small company index is outperforming by 610 basis points, or 6.10%. This certainly is leadership behavior and importantly, behavior that began coming out of the quick dip in November. With this, the S&P 600’s leading behavior has been unfolding for a couple of months.

In light of the small caps’ poor performance over the last several years, to see a couple of months’ run of outperformance is noteworthy.

Will it last?

As depicted in our first chart above, this is not the first time we’ve seen small company’s begin to perform to a level of suggesting something substantive was unfolding, to only then see the trend attempt fade away as fast as it started.

Here is our central cautionary observation/contemplation:

In light various well-known big tech companies struggling with their trends, which in some cases have turned into notable percentage reductions from their high water marks, can the stock market overall hold together in light of this tremendous leadership space (of recent years) struggling with their stock price performances since November.

This space has primarily been responsible for the weighted S&P 500’s outsized performance since 2022.

The narrow stock market performance since 2022 has been masked over, if you will, by the tremendous outperformance of the weighted S&P 500, which itself has been driven in large part by the aforementioned big tech companies who are now, generally speaking, struggling with their trends.

Similar to the S&P 600’s upside momentum build since November, market participants have been attempting to build downside momentum among the big tech leadership space since November.

Also similar to the S&P 600’s momentum build here in 2026, said big tech downside momentum build is broadening out to more tech names as we have traded through a decent chunk of this first month of 2026.

This developing storyline has us both intrigued and cautious on capital deployment.

While the weighted S&P 500 has been struggling in its performance since November, a topic we shared in more detail in our previous edition, as of this writing it is now negative for the early part of 2026. It was positive just a couple of sessions previous.

The big tech downside is trying to build in its momentum and while doing so it is taking the weighted S&P 500 with it. This is expected in light of the strong weightings to this space within the weighted version of the S&P 500.

Circling back to the central point of this edition, which is small company outperformance, to emphasize, we are focused on whether this space, along with the broader stock market, can hold itself together if we see prior leadership (big tech) move notably lower from here.

When notable prior leadership turns over, history offers downside concerns for the stock market at large are valid. Will that be the case this time? First, we need to see if big tech will build downside momentum from here or whether this is just a short bout of stock price adjustments.

If big tech does build downside from here, the central observation point will be whether the broader market can continue to perform such as it has since mid-November?

As stated, this is our central cautionary observation/contemplation which as us intrigued with potential opportunity, and yet, cautious in light of questionable behavior from long-standing leadership, i.e. big tech.

We will share as this storyline unfolds.

I wish you well….

-Ken from Mind Your Stops

Collective stock market participants are putting a different market landscape together in recent weeks relative to what we had grown accustomed to in recent years.

To be fair, this developing change can disappear quickly, which has also occurred in recent years.

We have dedicated many editions over the last few years to our observation of the structural weakness within the stock market. If the stock market were an eight- cylinder engine, we would describe it as operating on five cylinders, at best, in recent years.

The headline performance of the stock market has been dominated by relatively few companies when viewed across the entire landscape of offerings throughout the market.

This type of market backdrop is succinctly described as a structurally narrow market. Conversely, when the performance of the market is supported by many, if not most of the companies comprising the stock market, it is labeled as a structurally broad and sound market.

Narrow markets are viewed as suspicious and, if you will, untrustworthy by participants in light of the lack of broad strength throughout the market backdrop. When a bull market is trending in a narrow sense, it can portend problems, given time.

We have shared this curious storyline of the market’s structural health, or lack thereof, as the bull market reasserted itself after the notable downturn in 2022. To underline this overall storyline with a historical context, below we offer a chart that was often shared within editions since that time period.

Click For Larger View: https://schrts.co/PvRBmRBe

The above encompasses this 21^st century whereby it places the performance of the equal-weight and weighted S&P 500 indices against one another. When the line above is trending upward, this means the equal-weight S&P 500 index is outperforming the weighted S&P 500 index.

In the equal-weight version, the index performance is a result of how the 500 companies’ stock prices performed in total.

The weighted version, which is the version that is always reported on by media, places more weight on certain companies relative to other companies according to how the index is constructed. With this, a few handfuls of companies have an outsized impact on the performance of the weighted index.

Our red arrows within the chart point to the strong outperformance of the equal-weight version coming out of notable downturns (bear markets) in this 21^st century.

Our black arrow, post-2022’s notable downturn, highlights the historical aberration of this bull market, as the weighted version has handily and consistently outperformed the equal-weight version.

Since that timeframe the weighted version has doubled the performance of the equal-weight version in percentage return results. 78% compared to 35%. That is notable atypical behavior for fresh bull market time periods.

Historically, we are accustomed to broad and robust strength across the stock market landscape when coming out of a bear market downturn. Our black arrow, pointing to the long downtrend, highlights how structurally narrow the stock market has been in recent years.

In the lower, far right corner, we see an uptick developing in recent weeks. This may only be yet another attempt at the market broadening out only to be turned back again, such as we have seen numerous times in the path of the highlighted downtrend within the chart.

As we often say, no trend goes up or down in a straight line, which is again affirmed in the above downtrend.

Below, let’s isolate recent weeks through a completely different view with an additional component added to the mix.

Click For Larger View: https://schrts.co/JKMfWymt

The above dates back to the beginning of November in order to provide some recent perspective. The black line is the weighted S&P 500, while the blue line is the equal-weight S&P 500. Our new entrant to the mix is depicted by the red line, which is the S&P 600 small company index.

All three lines are reflecting their percentage performance process since the beginning of November.

Take note toward the left side of the chart in the mid-November timeframe. Our red down arrow highlights how all three incurred notable air pockets that ultimately led to a resumption of the trend as November proceeded into December. Our red up arrow highlights the resumption of the trend.

Most importantly, our red up arrow also points toward a behavioral shift.

Note how the S&P 500 weighted index (black line) began to struggle in performance, in particular when compared to the other two as we moved into December. The equal-weight S&P (blue line) began to easily separate itself from the weighted version, as did the small company S&P 600 (red line) index.

As late 2025 morphed into early 2026, the behavioral shift that showed its first signs of life in the latter part of November continued to build in strength. Behaviorally speaking, in recent weeks the broader market has begun to perk up, especially relative to the more narrow, weighted S&P 500.

We added the small company S&P 600 index to the mix above for emphasis of said behavior.

The small company indices have been quite poor in their performance relative to the weighted S&P 500 index in recent years. In this case the S&P 500 weighted index tripled the performance of the S&P 600 small company index from 2023 through year-end 2025. 78% compared to 26%.

As an additional note relative to the atypical behavior of this post-2022 bull market run, small companies customarily lead the charge higher coming out of a bear market experience. In this case, as shared, small company stock price performance has been abysmal relative to the weighted S&P 500 index.

For the small companies via the S&P 600 small company index to show leadership in performance underlines the above behavioral shift of late.

As offered above, this developing shift can disappear quickly, as we have seen attempts at broadening behavior several times in recent years that ultimately fizzled out. For the small company indices to also show leadership offers additional credence to this current shift.

It is crucial to know the general behavioral tone of the market landscape when deploying capital. In a general sense, it keeps deployed capital from swimming upstream, if you will.

Collective stock market participants have been pricing in a change in the structural landscape of the market in recent weeks, which began to catch our attention as we came out of the mid-November air pocket as depicted above.

Now the central question and observation point is to monitor if this shift can stick and have lasting trend tendencies. We will update and share accordingly as the near term unfolds.

I wish you well……

-Ken from Mind Your Stops

Today’s edition will wrap up our 2025 offerings as the calendar is barreling toward the end-of-year holidays. We will continue sharing perspectives and observations on the socioeconomic landscape in the front part of January.

In recent editions we have addressed the stock market and the housing market through different perspectives. Regarding the stock market, we have shared views of the behavior of collective stock market participants as well as valuation levels.

What about the behavior of the general citizenry relative to the stock market? Can we gauge that?

Similar to looking at collective participants and observing messaging left in the wake of their market operations, we can take a long-view perspective to see how the citizenry is viewing the stock market relative to broad financial assets.

Through the lens of valuation levels for the stock market, are they doing what they typically do, using history as a guide, whereby they can’t seem to get enough of stock ownership, as the stock market is epically expensive when observing it through any valuation measure?

As we have shared many times, price itself informs little about an asset, but valuation tells all.

Interestingly, casual market participants and seemingly hardened, deeply experienced participants are drawn evermore to markets when seeing/hearing that prices are rising higher and higher.

When said prices have risen to such a level that “bubble” is an appropriate descriptive word to use as a label for the general market landscape, the attraction nears trance-like levels. This state of mind is counterintuitive.

When in a bubble, people are quite enthusiastic about the stock market, as told by their asset positioning, while they should be far more concerned about the risk in the stock market. Rational thinking can break the bubble psychology trance, which is far more immersed in emotion than it is in logic.

Offer the word “valuation” in an attempt to break said trance-like state, and you get about as much focused attention in return as you do from a beloved dog who is completely focused on that squirrel just twenty yards away. “Yeah, whatever, I’m about to have a treat honoring my pre-domesticated lineage!”

At times, those animal spirits displayed by said dog also apply to humans, identified by characteristics and behavioral attributes displayed within market landscapes.

“Animal spirits” is a descriptive phrase used occasionally to describe the influence human emotions can and do have on market trends.

Animal spirits are running wild and free when prices rise and rise to the point of bubbling. Enter some rational thinking into such an emotional backdrop, and usually the offered thoughts will be received about as sincerely as our aforementioned dog. “Say what? Yeah, okay, whatever.”

Please don’t enter rational inputs while we are collectively lathered up on (emotional) bubble psychology, certainly is an applicable reply.

Regarding bubble market backdrops, below we share two data views that show stock market valuations are off the charts, and as is customary in such backdrops, households, generally speaking, cannot seem to get enough exposure to this financial asset class.

Perfect, collective bubble psychology is displayed as the market bubbles, and enthusiasm builds, rather than a logical response of increased concern toward downside risk coinciding with said bubble.

Click For a Larger View: https://fred.stlouisfed.org/graph/?g=1OSSy

www.thechartstore.com

Above we have two charts to use interactively for this edition. Both charts offer significant historical perspective, which gives us a long view of time.

The top chart depicts the percentage of financial assets that households have exposed to corporate equities. The bottom chart is a large macro metric that offers a valuation view of the stock market.

The bottom chart takes the total value of the stock market (known as market capitalization) and compares it to the size of economic activity using nominal GDP as the economic activity gauge.

Via the top chart, the current exposure to corporate equities, as a percentage of financial assets, is the highest we have seen throughout the numerous decades depicted. Our red arrow begins at the prior peak level of exposure dating back to the beginning of this current century, circa 2000.

Let’s call that the flameout level of the tremendous increase in exposure through the dot-com bubble era.

Our red arrow highlights the notable increase in the current household exposure relative to that bubble peak.

The bottom chart is offering an astounding increase in valuation levels via stock market pricing relative to the underlying size of economic activity.

For perspective, the beginning point of our red arrow (bottom chart) was epically high, to that point in time, dating back to 1924. At the dot-com peak, the stock market was valued at an unfathomable 175% of the size of underlying economic activity.

For my part, in real time back then, using the above metric, I thought it was so incredible that we would not possibly see such a level reached again, at least in my lifetime. I was seriously wrong.

Our current reading with a touch of rounding comes in at 225%. This informs us that the current stock market capitalization is more than 2x the size of the underlying economic activity that ultimately supports the sales and profits of the companies listed within the stock market.

With this, as should be expected when in a bubble, the top chart shows that household exposure to corporate equities is also off the charts, relative to its history.

The total price of the market (market capitalization) has been rising and rising, and with this, the collective citizenry can easily get lulled into looking at stocks, not as risk assets, but rather as a vehicle that is analogous to a savings account.

Think: no risk, only upside. Also think of perfect collective bubble psychology in full display.

We offer, yet again, that when discussing market valuation levels, regardless of how historically high they may be, their use as a market timing tool is nearly worthless.

This is why we are obsessed with broad market characteristics and behaviors that aid in gauging whether collective participants are getting concerned about this epically valued market landscape.

For our part, in managing assets in a bubbled-up market environment, it all begins with a sound awareness that we are in a bubble environment and keeping logical, rational thinking and observing at the forefront of our minds. There is no room for trance-like, bubble psychological states of mind when participating in our current valuation backdrop.

Using history as a guide, imploding bubble markets ultimately come for everybody once they begin to pop.

Those who are unaware that a bubble even exists, perhaps because they are oblivious to valuation measures relative to history or because they simply choose to psychologically ignore valuation measures, are setting themselves up for a notable downside experience via their capital.

History does not repeat, but it often rhymes. It will be interesting, given time, how this bubble rhymes relative to previous bubbles that found their pin.

Here is to wishing you a Merry Christmas and a Happy New Year! Thank you for your time in reading these editions – we’ll see you in 2026!

I wish you well…

-Ken from Mind Your Stops

Let’s make this edition a bit more personal than what is customary. Throughout editions, at times, I offer a personal note as a sliver of an add-on within X piece in order to share additional perspective.

Today, I will offer more personal experience coupled with data that supports various observations of recent years relative to housing.

To begin, in order to give some personal perspective relative to the topic of housing, for various reasons I have been in a position where I play a role across a few different homes, to include a commercial property, and through this, I have had experiences with different households.

Reduced to the bottom line, this means I am essentially responsible for ensuring the properties are in good standing – both in honoring financial terms and in good repair.

As an important add-on, my universe of people, if you will – friends, relatives, friends of friends, etc., - is loaded with tradespeople from masons to electricians to plumbers to carpenters - you get the point. What I hear from them, on any given interaction, is extremely informative.

Through this, when discussing housing, I can experientially chime in more than most want to hear.

Through experience, the housing storyline, in particular over recent years – let’s say 5 years in order to focus on somewhat recent time – has been fascinating and challenging while also being informative of a larger socioeconomic breakdown. We will steer clear of the larger socioeconomic breakdown part and stay solidly within the lane of housing.

Speaking from experience, this includes endless happenstance discussions that have occurred over recent years, to include even recent days, which many times leave me asking myself, “How did this topic, yet again, arise within a conversation completely unrelated to housing?”

The answer became quite obvious as time unfolded; society at large is ever more seriously struggling with housing costs.

Housing costs?

Is that the price of housing itself or all costs related to housing? That would be all costs related to housing, more than housing itself.

This walks us back to our previous edition, where we placed a valuation metric onto home prices (and the stock market) via how many hours of work it takes to purchase the median price of new homes sold relative to average hourly wages. Both measures offer deep history, which in turn offers excellent historical perspective for the valuation metric.

The chart we shared last week is offered again directly below along with annotations added for this week’s edition.

www.thechartstore.com

Note the above valuation chart for home prices through an hour’s work measure, which dates back to 1964. This measure places home prices in the context of incomes that pay for them.

Back in early 2020, the government printed money out of thin air and proceeded to fan it about throughout all segments of society in order to save society. It wrecked society. This should not be a surprise, as money printing in largesse always does. It just feels so good in the moment! The hangover is always the problem, using history as a guide.

Relative to housing prices on the above valuation basis, note the beginning point of our inserted arrow that went vertical. That beginning point was early 2020.

It should not surprise anyone with such a massive distribution of money created out of thin air that asset prices across the board would rise substantially when priced in that devalued currency. So fast that wage growth rates could not possibly keep up with rapidly escalating home prices.

Hence, the above missile launch shows how many hours of work it took to purchase the median sales price of new homes sold. Prices skyrocketed, but worse, far worse, valuation levels went meteoric to the upside.

Prior to the said money printing escapade, the above home price valuation measure was registering general levels consistent with levels experienced dating all the way back to the late 1980s. The cost of carry was even lower!

Our top red circle denotes the high point, which was registering never-before-seen valuation levels for home prices, as the chart depicts.

Take a moment to digest the lower level of the current day, which is highlighted via our second red circle. That is a tremendous drop in the valuation levels of home prices (hours of work valuation measure), which essentially walks us back to the beginning of our red arrow, circa early 2020.

Let’s go back to my experience with housing generally as described at the outset.

Interestingly, and I noted this consistently to myself back then, during the vertical ascent of the above measure via our red arrow, I rarely found myself in happenstance/unsolicited conversations about the challenge of housing prices, even though, on a valuation basis, the prices of homes were mind-boggling, using the above measure as my guide, in real time back then.

More interesting, in the current day, while home prices using the above valuation basis have dropped nearly to levels seen before the money printing blitz spike, the cost of housing’s lack of affordability is seemingly an everyday societal topic. What gives?

The Cost of Carry

The home price itself is a piece of the cost of carrying the home note until it’s paid in full.

If we expand the cost of carry to everything related to “carrying” the home, we begin to see how carrying the home for people back in the valuation peak (above chart, top circle) was much easier (cheaper) than it has been in the years following to the current day.

While valuation levels for the price of homes themselves offer homes are cheaper today, when throwing in all related carrying costs, that statement goes right out the proverbial window.

Electricity costs, heating costs (gas, propane, wood, etc.), interest rates, real estate taxes, and home insurance, along with the costs of repairs and maintenance, to include the labor costs of such or the standalone input material costs if the DIY route is chosen, are all up tremendously from levels experienced just a few years ago.

This says nothing of the lack of quality of replacement products. How many brand-new parts turn out to be faulty given a few weeks of operation, if not a few days?

For my part, I have plenty of such experiences. Underlining this, as I have been writing this edition, I was informed of such a situation. How’s that for timing eh? Through the lens of the aforementioned tradespeople in my universe, such a quality issue is certainly not a rare experience for them.

Continuing, everyone knows interest rate costs are up tremendously. In early 2020 the 15-year average mortgage rate was in the low 2% range, which spiked up to the 7% area only to settle back to the 5 ½% area currently. Bond market participants are showing little enthusiasm toward pushing this rate notably lower. Why?

Price inflation, government budget deficits remaining in place, and massive unfunded liabilities of the government, which assure more downstream Fed money printing, which brings with it more currency instability, which is known as more price inflation. Price inflation is the bane of bond market participants.

This while property insurance growth rates were tame circa early 2020 only to go on their own consistent price spike with each passing year in recent years. Double-digit growth became the norm, as told via the PPI subset of data points for monitoring property insurance and certainly affirmed via my own experience across properties.

Electricity rates went on their own double-digit rise via the CPI’s subset of data drilled down to tracking electricity rates.

On the material cost front for repairs and maintenance, I offer lumber as an item to discuss.

I choose lumber as an input cost because it is supposed to be a successful part of the price inflation story in recent years. Most remember the massive spike in lumber prices following the money printing press blitz back in the early 2020s. Most realize those prices fell back to earth, if you will.

As of the time of this writing lumber prices are quoted at $549 per 1000 board feet on the Chicago Mercantile Exchange. The early 2020 price range was $350 - $400. Split it to $375 which means lumber is currently 46% higher than just a few years ago, and this is after it “came back to earth.”

Underneath the entire housing story is that we have a carrying cost issue when viewed through the lens of the full carrying costs of a home. When viewed through a valuation lens the prices of homes relative to average wages have receded back to early 2020 levels.

When home prices catapulted higher, and along with them valuation levels as depicted in our above chart, most, if not nearly all related home carrying costs were at reasonable levels along with their annual growth rates.

With a little time added, said carrying costs went on their own price-trend type spikes, and through this, pushed the lack of housing affordability toward the top of the list throughout the citizenry.

So while home prices are down notably from their peak using the above valuation measure, the reality of such is swamped over with the massive run in prices related to the carrying costs of a home.

While most view the cost of carry as primarily the interest rate and the cost of the home, in the systemic price inflation environment of recent years, the total cost of carry is what is crippling the everyday household. This holds true for renting a residence or an apartment as well, as that cost of carry has to be carried by somebody in the mix of the property.

To be clear, housing is not low and cheap even when viewed through the above valuation lens.

Rather, when placing price into the above chart’s valuation lens, we can see home prices relative to incomes (using average hourly wage rates) have come down considerably and are nearly back to where they were when the price and valuation spike began in early 2020.

So the next time you hear something about these outrageous home prices, I invite you to consider the much larger storyline related to housing costs as perhaps a larger impediment to something akin to affordable housing.

Home prices, on their own via the valuation perspective as laid out in the above chart, are getting in a reasonable range when viewing our current-day level relative to recent history.

As we often say, price informs little, but valuation tells all.

I wish you well….

-Ken from Mind Your Stops

Housing affordability, or the lack thereof, seemingly is a constant topic for discussion throughout society. Whether explicitly stated and discussed or simply inferred within an unrelated topic, the lack of affordable housing for the general citizenry is a topic that is often front and center.

Upon hearing this topic addressed, at times, I will simultaneously hear an impromptu dialogue within myself that offers, “If you think housing is expensive, you should look at the stock market.”

Call it an occupational hazard.

That is, when consistently sifting through many asset markets and viewing them through various angles, to include, importantly, valuation angles, the process cannot help but leave a time-stamped impression on the brain that is not easily forgotten, given enough exposure to various markets.

Housing is tangible, which allows people to intuitively understand how affordable or unaffordable that market is relative to incomes. Individuals know what their income levels are and what the cost of their desired housing costs are, which offers them a real-time measure of affordability, for themselves at least.

Add a touch of personal economic history and people can easily intuit if housing has become more or less affordable.

The stock market does not allow for such an intuitive understanding relative to its “affordability,” if you will. Individuals do not buy the stock market; they buy a share of the stock market or a share of a company that is publicly traded within the stock market.

They think in terms of overall dollars invested.

I am investing $10,000, as an example. What never follows such a decision is the question that always follows when participating in the housing market, or any consumer market. That is, okay, now tell me, what will my $10,000 buy me?

We often say that price offers little inherent information, but valuation tells all.

This is why home prices for the masses are relatively easy to assess on the affordability scale, as they know the price, but equally important, they know their income levels which is an essential ingredient in gauging affordability. Said differently and to the point of this edition, they are able to intuit a valuation level onto the home price.

Valuation takes price and places it into context.

In this case the valuation context is the income levels of the hoped-for purchasers, or renters.

As a side note, mortgage rates do not play a role here as an additional input, as we are not looking at the cost of carry. That is, the cost to carry the note for the underlying asset. Rather, our motivation is to determine a valuation level of the price of the home. Income relative to price offers a valuation context.

A Macro View

What if we took the above approach on a large macro scale rather than down to an individual storyline in order to gauge general valuation levels of two key asset markets?

Here in 2025, we have dedicated some editions to the topic of market valuations for the stock market, and we also sprinkled in a couple for the housing market, via an hour’s work measure.

When sharing how many hours of work it takes to purchase the two different markets, we noted, through that valuation metric, that on a trend growth rate basis housing was cheap when compared to stock market valuation levels. That was then; this is now. Below, we update the measures. Both date back to 1964 to the current day for historical perspective.

The top chart is how many hours of work it takes to purchase the S&P 500, while the bottom is the median sales price of new homes sold to represent the general housing market. Note the trend trajectories of each.

www.thechartstore.com

For the bulk of citizens, it is wages that ultimately pay for housing. The above places the growth in wages, over the decades displayed, to that of the growth in home prices, using the median sales price of new homes sold.

Back in the 1960s through the mid-1980s, it took around 8000–9000 hours of work to purchase the median price for a new home. Over ensuing decades this escalated to a high point of just over 16,000 hours. Our current reading measures in the low-13,000 hours area.

While the hours worked for the S&P 500 went up approximately 9 times over the decades displayed, housing “only” doubled. Think, 8000 hours, to the high water mark of just over 16,000 hours.

Unlike the S&P 500 chart, which continues to post higher highs in this measure, the above housing measure is off its highs and is essentially trendless, i.e., it is in a range, although it has trended lower of late.

The essence of the measure is that it is a representation of the everyday household’s general income trajectory to that of the price trend trajectory of X market. This allows for a comparison of the perspective of market prices and their historical trend to that of general income trends.

As this year has progressed, for its part, the stock market has continued to move ever higher with its valuation level relative to average hourly wages. Housing, on the other hand, has seen its valuation level move a bit lower.

With this, the stock market has continued to outpace the housing market, on a trend basis, relative to how expensive (think valuation) it is when placing it into the context of average hourly earnings.

This is not to say that housing is historically cheap via this measure.

Rather, the point is that as expensive as most feel the housing market is in the current day, when using a comparable valuation approach, the stock market continues to easily outpace, on a trend basis, the very market that most people talk about frequently as being highly priced, and/or unaffordable.

On a personal note, strangely, I don’t think I’ve heard much shared about how unaffordable the stock market is even while its valuation levels are stratospheric. Many other valuation metrics confirm this view, some of which we have shared in 2025.

While offering this, it is important, very important, to realize that valuation measures are a terrible timing tool, which is to say, they offer next to nothing in terms of their reliable forward guidance on market direction. For that, we continue with our focus on market participants’ behaviors via market-based trading and the broad economic tea leaves.

For now, with the above in mind, you have a visual depiction of what the general stock market and the general housing market look like, not in price, but in a valuation measure of how many hours of work it takes to purchase either.

I wish you well…

-Ken from Mind Your Stops

Throughout various editions we have examined the stock market through different market-based perspectives since this bull market began, coming out of the 2022 notable drawdown.

We have offered many times that this bull market is seriously lacking in broad participation. A strong bull market, historically speaking, is broad and robust with upward trending prices across the stock market landscape.

We cannot emphasize enough that narrow bull markets are ripe for dangerous pricing action the longer they continue to display such behavior.

When a few handfuls of companies are dominating the performance for the stock market at large, while vast areas of the broad market cannot kick into gear, or worse, their price trends look as though the stock market as a whole is struggling, then you know the market landscape is quite narrow in its participation.

When sharing on this topic, we always add that this is all subject to change. This implies that participants can turn quickly toward broadening out the market, and in so doing, turn this market’s landscape into something resembling the customary bull market experience.

The problem is this is not happening. Rather, the market gets narrower, which informs us that collective participants continue to get more and more selective in what they are willing to bid up on a trend basis.

We have delved into this topic more of late because the storyline refuses to change. Collective market participants continue to show a disinterest in bidding up the broader market. This, in a nutshell, is unhealthy price action when viewing the broad market.

Viewing a couple of indices that are heavily weighted toward the few handfuls of companies that are performing wonderfully does not depict the broader issue. As an aside, general financial reporting typically references these types of indices as the gauge for stock market pricing on any given day.

Interestingly though, said weighted indices, when viewed next to broader, less weighted, or even equally weighted indices, certainly add insight into how narrow the stock market structure is.

Click For Larger View: https://schrts.co/EbjbmwRH

Above we are placing the traditionally referenced S&P 500 index, which is a weighted index, alongside the much less reported, equal-weight S&P 500 index.

We have shown these two in previous editions through different visual approaches, to include different lengths of time. In the above chart, this time we chose to go with a 12-month view to get a sense of what has taken place in the previous one-year period.

The blue line represents the weighted S&P 500 index. The black line depicts the equal-weight S&P 500 index.

Note the tremendous disparity in performance by the black line relative to the blue line, particularly as we came out of the rapid drawdown in the early spring season.

For its part, the equal-weight S&P 500 index (black line) put in efforts to tag the high-water mark of 6% performance but was unable to touch that level of performance, while the weighted S&P 500 index (blue line) was tagging 17%.

To the current day, the equal weight is struggling in that it is now, as of this writing, sub-2% in performance for the previous 12 months. By any stretch, this cannot be described as the behavior of a roaring bull market. A roaring few handfuls of companies – yes. A roaring broad market landscape – no.

Click For Larger View: https://schrts.co/TgMCESnp

Above is the same 12-month performance chart with an additional index added.

The red line is the S&P 600 index, which tracks small capitalization companies within the stock market landscape. For its part, it has struggled to stay positive in performance for the previous one-year period.

It is important to realize that in truly strong bull markets the small capitalization companies often lead the charge in performance metrics. This has not been the case for this bull market post-2022, and clearly not in the above 12-month performance view.

The significance of the above is that narrow market backdrops lead to problematic price trends, given time. The problem is this narrow storyline has continued for quite a long while now with no change in sight.

Post-2022, there had been episodes where market participants were showing a willingness to broaden market performance, but they would quickly revert back to being very selective in what they were willing to bid higher, i.e., narrow performance participation.

For our part, with all of the above in mind, we are being extremely cautious in deploying capital at this juncture. Collective participants continue to display strange bidding behavior for a market that is collectively viewed as a roaring bull market.

If this market landscape cannot broaden out, and at this point it seemingly refuses to do so, it is a precursor to pricing issues, as a few handfuls of companies will not be able to carry the market without presenting a breakdown at some point.

I wish you well…

-Ken from Mind Your Stops

Within a late summer edition, we shared how collective stock market participants were displaying concerns for the employment market via the payroll processors.

The payroll processors are quite sensitive to the health of the general employment market in light of their core business function being at the epicenter of servicing employed personnel.

In light of market participants’ obsession with pricing markets today, in light of what they see downstream on the economic timeline, we found the processors’ share pricing behaviors worth noting at that time.

In the front part of 2025, two long-standing payroll processors were clear stock market leaders.

Underlining their market-leading resilience, when the stock market went hard south in March and part of April, these processors stood out in that they barely went negative on their year-to-date performance at that time.

It was interesting to observe their resiliency in that collective market participants were clearly not concerned about the prospects for the downstream employment market, as they were extremely reluctant to trade their share prices lower. This, while large swaths of the stock market fell with ease.

Tariff implementations back then had collective participants concerned for general share prices, but not for the payroll processors.

It was as though they were signaling that the reindustrialization attempt with tariff implementations, or the onshoring attempt as it is also referenced, would be a net positive for the general employment landscape, given time.

What a Shift It Has Been

We have continued to observe how market participants are trading these two well-established payroll processors’ shares and continue to be amazed at the tremendous turn in the pricing of their shares over recent months.

To go from tremendous resiliency in the face of notable downside market pricing to being tremendous underperformers within a few months is a rapid change in tone in how their shares are being priced by participants.

Click For Larger View: https://schrts.co/VvVcXFJP

The above chart encompasses the S&P 500 (black line) along with our two long-standing payroll processors, Automatic Data Processing and Paychex corporations, which are the blue and red lines, respectively. (We are using both as tools for this edition. We are not advising a buy or a sell on either of these companies.)

Via the above visual, 2025 has depicted two completely different storylines for these two processors relative to their performance as compared against the benchmark S&P 500 index.

Approximately mid-chart, early June, we began to see a shift in what had been clear strength and outperformance by the two processors.

To the left of the mid-chart area, we see the blue and red lines consistently performing well north of the S&P 500. Post mid-June and moving to the current day, we see the exact opposite: consistent underperformance via their notable downtrends.

In totality for the two processors, market participants went from bidding them up to double-digit percentage performers to selling them off to consistent, double-digit negative performers, all within a few months.

Click For Larger View: https://schrts.co/pBZhqYTI

To visually emphasize the tremendous turnaround from outperformance to then underperformance, the above chart is a baseline performance chart.

Our faint horizontal black line uses the S&P 500 as the baseline, which then allows for the two processors to clearly depict their level of performance relative to that of the S&P 500 index.

The blue line represents Automatic Data Processing, while the red line depicts Paychex.

If we use a bit of rounding, we can offer, via the above chart, that participants bid these up to a high of nearly 20% outperformance to that of the S&P 500 in the front part of 2025.

Toward the latter part of 2025, from mid-June to the current day, they have since sold these two off to 30% of underperformance. A massive turnaround in performance compared to that of the benchmark S&P 500.

In the lower right section of the chart, we inserted a small red arrow. This is the point when we last shared the payroll processors with a concern they were pointing toward employment market caution.

At that time, we thought the turnaround in performance was notable. Since that time the chart depicts the downtrend in underperformance has continued further. This is a tremendous turn of pricing by collective market participants.

Collective participants seem to be offering increased concerns for the employment landscape via their pricing of these two processors. Importantly, said participants have been offering this change in pricing behavior since mid-June. Their messaging has continued more recently.

This will be an interesting relationship to observe by year-end. We will continue to monitor this market-based performance relationship as part of our toolbox, and if warranted, will share again if participants change this in any meaningful direction from here.

I wish you well….

-Ken from Mind Your Stops

Here in 2025, we have dedicated several editions to the topic of market valuations. We always like to say that price informs you of very little, but valuation tells all. Taking a market’s price and placing it into context, via a valuation process, offers an invaluable perspective for the price of the market in question.

If you are informed of the price of nearly anything, an immediate process begins of placing that price into a valuation context. Two shirts are offered at X price, with a third one free upon purchase of the two.

The consumer within immediately assesses whether there is value at that offered price. Price is not the be-all and end-all; it is placing that price into a valuation context that adds the insight and hence, the decision to purchase or to pass.

When observing a market, such as the stock market, we can see what collective market participants have done with prices via valuation measures to gauge, through a historical lens, whether the market is cheap, expensive, or somewhere in-between.

There are numerous ways to place price into a valuation context. Like any process when reviewing a market, or even economic landscapes, corroboration of several measures offers the clearest lens.

In previous editions on valuation topics, we have shared different approaches. Below we look at the stock market through a lens that we shared earlier in the year. We felt its behavior since that edition offered a worthwhile update.

This approach offers a 100-year perspective of the stock market relative to the size of the economy.

Total market capitalization of the stock market, think the total price of the whole market, as a percentage of the size of the economy, via nominal GDP, is an excellent high-level valuation tool.

This offers a broad view of how high, or low, the stock market is valued relative to the economic activity that ultimately supports the sales and profits of the component companies making up the stock market.

This is indeed a high-level view in that we are using two very broad inputs. The total price of the stock market coupled with the total size of economic activity underlines that this is a large macro perspective.

www.thechartstore.com

We offer a hat tip to our friend Ron over at the Chart Store for the calculation of the above data. For our part, we have annotated it via our red markings to draw attention to key points.

To begin, our red line begins at the top of the famous 1929 stock market peak.

As you can see by viewing the entirety of the above chart, that stock market paled in comparison to our late 20^th and early 21^st century stock market valuation levels when placing the total price of the stock market in the context of the underlying size of economic activity.

Our red line ends at the current day, which, via our red circle, denotes this measure is stratospheric relative to the long history displayed. In addition, we also added a red circle at the beginning of the year 2000, which was the peak of the 1990s internet bubble.

Placing them together offers easy visual context of where we stand currently with this valuation measure relative to that well-known stock market period.

The stock market, in the current day, easily eclipses the 1929 period and the late 1990s period, two well-recognized timeframes when the stock market was bid up to, for those times, stratospheric levels.

Again, relative to our current valuation backdrop, those periods were considerably lower than the current day.

Any time we discuss valuation levels of any market, we always emphasize that such studies offer near-zero value in terms of timing the price trend of the market in question.

There is no predetermined level whereby, if attained, collective market participants will agree to simply walk away and let market prices fall rapidly to something more in line with reasonable historical valuation levels.

What valuation views do offer is information as to what the quality of the water your capital is swimming in, if you will.

For our part, we are well aware that many valuation measures are chiming in with the above and are offering that the current stock market is indeed at stratospheric levels. With this, we are extremely judicious in deploying capital into this market landscape.

This will certainly be a time period that will prove to be historically significant through the perspective of valuation levels. As high as valuation levels currently are, will they only move higher, and in so doing, yet again show just what poor trend timing tools they are known to be?

Conversely, are we peaking out, and with this, after the stock market decline, will we hear, yet again, general financial media offer how it was obvious stretched valuation levels simply could not be justified? Interestingly, before the market decline, said media offers little to nothing on the topic, using history as a guide.

For our part, we will continue to include valuation topics as future editions roll out, as this stock market storyline will certainly prove to be quite interesting, given time.

I wish you well…

-Ken from Mind Your Stops

We have dedicated more editions to the structural integrity of the stock market in 2025 than we have in recent years combined. We have done this because the structural health of the stock market has been sorely missing in this bull market run.

What is amazing, when viewed through a historical lens, is how the lack of structural health continues to unfold to the current day.

For our part, within these editions when addressing this topic, we have offered how we continue to watch for any signs that collective market participants are beginning to improve the structural health of the stock market by bidding up larger swaths of the market landscape.

To date, we have seen whimpers of such, but they quickly fade away rather than building momentum to something of a notable trend.

We have emphasized in past editions, and do so here again today, that a narrow, structurally weak stock market landscape sets the stage for a notable downstream market issue.

In addition to this, it is important to be fully aware of a narrow stock market when deploying capital into it. In such markets, selectivity is crucial when deploying capital because collective market participants are so selective in what they are willing to bid up on a trend basis.

The old dartboard market landscape, as in just throw a proverbial dart at the market and you will come up a winner, is not an operative approach for winning in narrow, highly selective stock market backdrops.

Interestingly, such a metaphorical description of past bull markets surfaced in light of the broad and robust strength of some past bull market runs.

This bull market run, which began as we came out of the notable 2022 downturn, has not shown those types of strong and robust characteristics when viewing the broad market landscape.

A Different Perspective

Being that we have belabored this observation with numerous editions dedicated to it, we thought we would share a different perspective while continuing to underline how strange this post-2022 run has been through the lens of the S&P complex of indices.

The well-recognized S&P 500 is an index comprised of large-sized companies.

The S&P 600 is a well-established index as well, but in its case the focus is to populate it with small-sized companies. Large caps and small caps are the industry lingo used to succinctly describe broad areas of the stock market by the size of the companies under review.

Historically, in particular when coming out of a bear market downturn, small-sized companies oftentimes robustly lead the broad market landscape as a new bull market takes hold.

At a minimum, these small-sized companies, collectively represented by the S&P 600 index, perform right along with larger companies such as those included in the S&P 500 index.

This time around, post-2022 that is, this has not held true at all.

Below, we share four charts to help illustrate this observation of our current bull market backdrop compared to that of a recent historical fresh bull market run, which emerged as the bear market downturn of 2008 culminated in early 2009.

We are using the S&P 500 large-size company index alongside the S&P 600 small-size company index to compare and contrast the behaviors of each in two different time periods.

For ease of visual comparison, we have the two timeframes stacked together via percentage performance charts in order to visually compare the two periods.

The first chart below encompasses the finale of the 2009 low through 2011 in order to show the near-term follow-on behavior of the two indices as the new bull market trended upward.

The second chart depicts the entirety of the 2022 downturn and how this bull market run unfolded through to the current day.

For reference, the blue line in both charts represents the S&P 600 small-size company index, while the black line in both represents the S&P 500 large-size company index.

The history speaks for itself.

Note the excellent performance of the S&P 600 index (blue line) in the first chart as it would often lead the way in performance to that of the S&P 500.

In contrast, our current era via the second chart is unrecognizable to that of the first chart. Two bull market runs with vastly different characteristics relative to the market landscape being broad and robust in winning participation.

Click For Larger View: https://schrts.co/pEGiRAvj

Click For Larger View: https://schrts.co/AVWVBsvt

To underline the above with an additional visual reference, below we offer the same two indices via a percentage performance chart but present them in baseline format.

Baseline simply makes the S&P 500 index the baseline reference point from which the small-size S&P 600 index performance is highlighted relative to the S&P 500 baseline.

Simply put, the thin horizontal black line represents the S&P 500 as the baseline. The blue line depicts the small-size company S&P 600 index. When the blue line is above the thin black horizontal line, this means the small company S&P 600 index is outperforming the S&P 500.

When the blue line is below the thin black line, this means the small company index is underperforming the larger company S&P 500.

As in the above charts, the second chart below depicts our current bull market, which is unrecognizable from the first chart that is denoting the post-2008/09 bull market.

In the first chart below, the S&P 600 small company index posted consistent outperformance relative to that of the S&P 500.

In the second chart, the underperformance is startling by comparison.

Click For Larger View: https://schrts.co/fUvdCXgs

Click For Larger View: https://schrts.co/mtBemDME

The behavior of this bull market has been quite an aberration to that of historical bull market launches and runs. This is not changing.

Collective stock market participants continue to be highly selective in what they are willing to bid higher on a trend basis. The significance, as offered, is to appreciate that narrowly performing markets lead to problematic outcomes.

This does not assure that this narrow market structure will succumb to an imminent downturn, but more weakening structure across markets, to include the stock market, increases concerns.

I wish you well….

-Ken from Mind Your Stops