Last week, the highly anticipated nonfarm payrolls report for August came in softer than expectations, printing just 22k jobs versus the consensus of 75k. Coupled with the downward revisions of -21k to prior months, the three-month average payroll is just under 30k, well below the pace needed to put downward pressure on the unemployment rate. This marks a sharp reversal from the robust labor market seen earlier in the year, which had been buoyed by a string of upside surprises in employment data through late 2024.

The shift in the health of the labor market is notable, especially as it coincides with other signs of labor market cooling. Job openings continue to decline, with the latest JOLTS data showing 7.2 million openings compared to 7.4 million unemployed — a ratio that has now turned negative after peaking at above 10 million in the post-pandemic recovery.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, BLS

The softening in employment data reinforces a dovish outlook for the FOMC. Interest rate markets are now pricing in a total of six rate cuts through early 2027, a notable shift in expectations compared to just a few weeks ago. Treasury Secretary Scott Bessent’s assertion from less than a month ago that “we should probably be 150 basis points lower” has quickly moved from contrarian to consensus. The market’s embrace of a lower rate trajectory reflects not only the labor data but also broader signs of economic deceleration, and it suggests that the Fed may have more room to ease than previously thought.

Meanwhile, longer-maturity yields have remained remarkably stable. Since the Fed officially ended its hiking cycle in July 2023, the 10-year Treasury yield has hovered around 4.3%. This range-bound behavior has been more pronounced this year as interest rates have been stuck between two dynamics — on one side, the drag from slowing growth, and on the other, the inflationary risks posed by tariffs. Recent labor market developments have shifted the balance, with the distribution of rate outcomes for the remainder of the year now tilted toward the downside.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

One area that may offer clues about whether we are truly in a regime change is the mortgage-backed securities (MBS) market. MBS spreads have recently tightened, approaching their narrowest levels since 2023. A decisive move lower could signal the onset of a new phase of Fed easing — one that not only supports rates and MBS valuations, but also drives broad-based strength across the entire spectrum of spread sectors.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy, or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis, and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Over the past month, the labor market has taken center stage in the debate over the near-term trajectory of Fed policy. With inflation not showing a meaningful pickup in aggregate, jobs data may be the lynchpin for near-term rate cuts. If employment weakens meaningfully, the Fed gains cover to ease; if not, they risk waiting too long.

One under-the-radar but powerful signal is the Conference Board’s “Jobs Hard to Find” measure. It comes from the monthly Consumer Confidence Survey, where respondents are asked whether jobs are plentiful or hard to get. The index is constructed as the share of people who say jobs are difficult to find. While it’s a sentiment-based indicator, it has a strong historical correlation with the unemployment rate, jobless claims, and payroll growth. In fact, it often leads official labor data, since consumers are reporting what they experience in real time rather than waiting for lagging statistics to catch up.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, BLS, Conference Board 

Lately, this signal has turned meaningfully higher. The “Jobs Hard to Find” share has been grinding upward and now sits at its most elevated level since the early post-pandemic recovery. In past cycles, similar moves foreshadowed tougher labor prints ahead. Households may already be picking up on a slowdown that the official data will confirm later.

If the survey is picking up on true labor weakness, this strengthens the Fed’s case for a series of rate cuts starting this month. At the September FOMC meeting, Powell and his colleagues will have to balance the threat of tariffs on inflation against a labor market that looks increasingly vulnerable. The “Jobs Hard to Find” measure may prove to be one of the early warnings that the cycle has shifted.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy, or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis, and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Fed Chair Jerome Powell’s speech at Jackson Hole last week marked a clear pivot from prior Fed communications, striking a more dovish tone than markets had expected. For much of this year, Powell emphasized patience and a cautious approach to easing. At Jackson Hole, he pivoted, acknowledging that the balance of risks has changed and that with inflation closer to target and policy already restrictive, “adjustments may soon be warranted.”

This shift did not come in a vacuum. Labor market data in recent months have been weaker than previously thought. Headline payroll gains have slowed sharply — from an average of over 200,000 per month in 2023 to just 35,000 in the most recent release — and downward revisions have erased much of the strength reported earlier in the year. The unemployment rate has edged up to 4.2%, and Powell described the current state as a “curious kind of balance,” one that results not from robust momentum but from a simultaneous slowing of both labor supply and labor demand. Such conditions, he warned, can tip quickly, raising the risk of a sharper deterioration.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, BLS 

Overlaying these cyclical concerns was a structural change in the Fed’s policy framework that was scheduled for this year. Powell confirmed the Fed is abandoning the “average inflation targeting” approach it adopted in 2020. That framework — designed for a world of weak demand, low interest rates, and chronic undershooting of inflation — allowed inflation to run above 2% for a time to make up for earlier shortfalls. The aim was to lift long-term inflation expectations and prevent premature tightening. But the post-pandemic economy is different. Tariffs have reshaped global trade, immigration has slowed, and repeated supply shocks have altered the complexion of inflation. In this environment, tolerating overshoots risks embedding inflation rather than raising expectations. Powell announced a return to a more traditional 2% target — flexible enough to acknowledge real-world frictions, but without the asymmetric bias that tolerated prolonged overshooting.

The combination of a stricter-sounding framework and a dovish policy stance may seem contradictory, but it reflects the Fed’s evolving calculus. Inflation is moving toward the target faster than expected, while the costs of holding policy at restrictive levels are rising. The new framework restores credibility to the Fed’s inflation objective, even as Powell’s tone makes clear that the near-term priority is guarding against unnecessary damage to employment. The timing of the shift is telling. It signals that the Fed is ready to exit the “higher for longer” phase and transition toward gradual easing, with September now squarely in play.

Political pressure provides another important backdrop. The White House has been calling for rate cuts to support growth and jobs, placing the Fed in a delicate position. Powell avoided any explicit reference, but by emphasizing labor-market risks and pointing to the downside of waiting too long, he effectively acknowledged the broader context. Maintaining independence while responding to real economic weakness is a fine balance, and Jackson Hole was Powell’s attempt to walk that line.

Markets took him at his word. Treasury yields fell across the curve, led by the front end, as traders quickly priced in a near-certain September cut. The yield curve began to steepen, reflecting expectations of a lower policy path and a Fed that is more responsive to growth risks than previously assumed. Real yields rolled over, and credit markets tightened in anticipation of an easier stance.

For fixed income investors, the debate is no longer about how long the restrictive policy will remain, but how fast the easing cycle will unfold and how far the Fed will ultimately go. The chart below shows the market implied probability of a Fed cut at the September meeting, which has hovered in a range since February. Following a steady decline after the latest weak labor data revisions, the market is now pricing in an 86% probability of a rate cut at the September FOMC meeting.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

The message from Jackson Hole is clear: the Fed is pivoting from restraint to readiness. Inflation progress has given Powell room to maneuver, while weakening labor data and revisions have made the costs of inaction harder to ignore. September may well mark the start of a new phase in monetary policy — one where the focus shifts from fighting inflation at all costs to managing the risks of an economy that is already slowing.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy, or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis, and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

One of the most important but often overlooked macroeconomic shifts in recent years is the changing role of federal government spending in driving the real economy. While headlines tend to spotlight deficits and debt ceilings, the bigger story lies in how much the government spends relative to the size of the economy. This ratio, known as federal outlays-to-GDP, plays a critical role in shaping growth and increasingly shifts the responsibility for sustaining expansion onto the private sector.

As federal spending slows, the economy faces a headwind — unless consumer demand, corporate investment, and productivity gains, especially from AI and automation, step in to fill the gap.

Tracking the Government’s Footprint

Federal outlays as a share of nominal GDP offer a clear view of the government’s fiscal footprint. This ratio has ranged from a low of 17.3% in FY 2000 (during the late-1990s budget surplus era) to a high of 31.1% in FY 2020, averaging 20.9% since 1981.

A notable shift occurred after the 2008 financial crisis. From 1981 to 2007, federal spending averaged 19.8% of GDP. Post-2008, that average rose to 23.1%, reflecting structural changes in how the government allocates funds. Entitlement programs, like Social Security and Medicare, have grown significantly, driven by demographic trends and expanded benefits. These programs now account for over 60% of total spending, up from 45% in 1981.

Meanwhile, discretionary spending has shrunk from 50% to just 25%, and interest payments have climbed to around 14% of the budget, up from a historical range of 8%-10%, due to rising debt and higher interest rates. Compared to the post-WWII average of 19.5% (1947-1980), today’s spending levels reflect a larger welfare state and more active countercyclical fiscal policy.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, US Treasury, BEA

The Slowdown and Its Implications

Federal spending growth is now decelerating. In FY 2024, total outlays rose 9.98% year-over-year, reaching approximately $6.75 trillion — up from $6.13 trillion in FY 2023. This increase was driven largely by mandatory programs and surging interest payments. But in FY 2025, growth is expected to slow to just 3.75%, with outlays projected at $7.0 trillion, according to the CBO’s January 2025 baseline.

This slowdown — more than a 6% drop in spending growth — places greater pressure on the private sector to sustain economic momentum. Returning the outlays-to-GDP ratio to its long-term average of 20.9% would require cuts of 2 to 3 percentage points of GDP, or roughly $600-$900 billion annually, based on projected FY 2025 GDP of $29-$30 trillion.

The impact of such cuts depends on fiscal multipliers, which the CBO estimates range from 0.5x to 2.5x depending on the type of spending. In other words, every $1 reduction in spending could reduce GDP by $0.50 to $2.50. Historical examples include the 2013 sequestration, which shaved 0.5%-1.0% off GDP growth, and Europe’s 2010-2012 austerity measures, which prolonged economic stagnation.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, US Treasury

Private Sector: Time to Step Up

With federal spending growth slowing, the private sector will need to take the lead in driving expansion. That means stronger consumer spending, increased business investment, and productivity gains, particularly from AI and automation, will be essential to offset the fiscal drag.

In the near term, the strength of the labor market and consumer spending will be key indicators of whether the private sector can carry that weight. If these areas hold up, they could help sustain growth even as the government pulls back.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy, or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis, and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Given July’s recent payrolls miss and outsized negative revisions, the unemployment rate ticked up to 4.2% from 4.1% — stirring anxiety about whether the labor market is beginning to buckle after a period of extraordinary resilience.

But context matters.

The chart below plots quarterly data from 1948, comparing the unemployment rate to year-over-year real GDP growth. What stands out is that negative GDP prints have historically clustered when unemployment is above 5%. At the current level of 4.2%, we’re still comfortably below that threshold — and still in the territory that has typically coincided with economic expansion.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, BEA, BLS

The current policy stance is restrictive, but it’s not becoming more so. Instead, markets have shifted their focus to how quickly the Fed will normalize. Currently, the pendulum of expectations has swung hard toward accommodation. Cuts in September, November, and December are nearly fully priced in. The easing path looks fully valued, leaving little room for any sign of stabilization in the labor market or upside inflation surprises. While yields remain asymmetrically biased lower — especially in a downturn or hard-landing scenario — they could push the pendulum back and reprice the front end higher.

Still, history suggests we’re not in dangerous territory yet. With unemployment below 5%, the backdrop leans toward expansion, not recession. But when the market is leaning this far in one direction, it takes little for the momentum to shift. With cuts fully priced in and yields already reflecting a dovish tilt, the near-term risk/reward around adding duration here warrants caution.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy, or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis, and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

The Federal Reserve is often perceived as a monolith. Policy decisions are usually described in collective terms — “the Fed raised rates,” “the Fed is watching inflation” — as if the institution speaks with a single voice. But that perception may soon be tested with attention shifting to the Fed’s future composition.

While President Trump recently ruled out firing Chair Powell — reducing the likelihood of a near-term leadership shake-up — the Fed’s evolving makeup and internal dynamics will be important to watch. What’s at stake isn’t just the direction of monetary policy, but how markets respond to a potentially more divided and politically influenced Fed. Leadership changes could have profound implications for interest rates, inflation expectations, and asset prices.

The FOMC’s structure reflects a balance between centralized authority and regional input. Twelve members vote on policy decisions: seven governors appointed by the President and confirmed by the Senate, the New York Fed president (a permanent voter), and four rotating regional Fed bank presidents. While all 19 participants contribute to policy discussions, only the designated 12 cast formal votes.

Since the mid-1990s, FOMC votes have been marked by an extraordinary degree of unanimity, with most decisions passing 12-0 or with only a lone dissent. This consensus-oriented approach became a hallmark of the Greenspan era and has largely continued under subsequent Fed chairs.

But it wasn’t always this way. During the 1980s, dissent was more common — particularly among the Board of Governors. At the time, the Fed was grappling with double-digit inflation, volatile interest rates, and a credibility crisis. Governors frequently broke with the chair over the pace and severity of tightening measures, with some worried about recession risks and others pushing for even more aggressive action to tame inflation. The stakes were existential, and the ideological divides within the Committee were sharper. The shift toward near-unanimity in the 1990s reflected not only a calmer macroeconomic environment but also a deliberate cultural shift to manage expectations and reduce market noise.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Federal Reserve, Sage

Today, navigating the Fed’s dual mandate — maximum employment and price stability — is increasingly complex. While the labor market remains healthy, it is showing signs of slowing. At the same time, potential inflationary pressures from tariffs are expected but not having a major effect on inflation readings.

Market expectations suggest that Trump would favor a Fed chair who is explicitly dovish and aligned with his pro-growth agenda. This could mean faster and deeper rate cuts, marking a sharp departure from Powell’s focus on restoring price stability through restrictive policy. Such a shift would raise questions about the Fed’s independence and internal cohesion. While a more accommodative FOMC might boost equities and credit in the short term, it could also trigger a bear steepening, greater inflation volatility, and rising risk premiums if markets begin to doubt the Fed’s long-term commitment to price stability

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

So far, markets have largely discounted this risk. Implied volatilities for rates, credit, and equities remain near multi-year lows. But dissent signals more than disagreement — it signals uncertainty. A 9-3 or 8-4 vote, especially with dissent from governors, suggests diverging views on the economy, the policy path, or the influence of politics. That could lead to increased volatility around FOMC meetings, greater market sensitivity to economic data, and a wider range of scenarios for rates, the dollar, and risk assets.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Century Aluminum is considering development of the first new US aluminum smelter in nearly 50 years — a move that could revitalize the domestic industrial metals landscape. The company recently raised capital in the high-yield market with a $400 million 7NC3 senior secured note at 6.875%, signaling renewed investor interest in US-based metals production.

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

Strategic Supply Gap

In 2024, the United States imported approximately 3.6 million metric tons of aluminum, while domestic production totaled just 678,000 metric tons. Century already produces about 60% of all US primary aluminum, but with the US facing a 4 million metric ton deficit — and domestic output representing just 1% of global supply — the company has significant room to grow. A new smelter would not only reduce reliance on imports but also enhance supply chain resilience for critical industries like aerospace, defense, and clean energy.

Industrial Revival Meets Fixed Income Opportunity

Century’s bond issuance reflects a broader resurgence in US industrial investment, particularly in sectors aligned with national security and energy transition. For bond investors, this marks a shift from traditional commodity risk toward policy-supported infrastructure plays. The aluminum sector, once considered cyclical and globally oversupplied, is now being reshaped by tariffs, tax credits, and strategic supply concerns.

Policy Tailwinds

Century is benefiting from a confluence of policy support: Section 232 tariffs help level the playing field against subsidized foreign producers, such as China, and a $500 million DOE grant supports the buildout of domestic smelting capacity. IRA tax credits further enhance project economics.

Financial Discipline

Century Aluminum is poised for a breakout year in 2025, with projected EBITDA topping $300 million, more than double its 2023 EBITDA of $133 million. The company is also aiming to reduce net debt to $300 million and maintain leverage below 2.0x — a notable shift for a historically volatile credit.

Century’s recent bond issuance offers attractive relative value compared to other high-yield industrials, especially given its improving fundamentals and strategic backing. While the company’s high-cost structure and commodity exposure remain credit considerations, its partnership with Glencore PLC — a supplier, customer, and partial owner — provides additional stability.

Ripple Effects Across the Supply Chain

This isn’t just a bond deal — it’s a signal that investment in US aluminum is back on the industrial policy map. If Century moves forward with capacity growth, it will mark a turning point in the strategic importance of US smelting capacity — and a potential inflection point for investors looking to align yield with long-term structural themes.

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Recent rhetoric from the White House has drawn attention to Federal Reserve Chair Jerome Powell, particularly regarding scrutiny of the central bank’s $2.5 billion headquarters renovation. While legal experts generally agree that a president cannot fire a Fed chair without cause, reports that the administration explored such an option — however unlikely — were enough to momentarily induce market volatility last week. Treasury Secretary Scott Bessent reportedly advised against any action, citing potential market instability and legal uncertainty.

The independence of the Federal Reserve is a cornerstone of US monetary credibility. Any hint of political interference tends to raise risk premiums, particularly around inflation and the integrity of long-term policymaking. A disorderly leadership change at the Fed would theoretically drive Treasury yields higher, weaken the dollar, and introduce volatility across asset classes.

The immediate market reaction reflected that dynamic. Equity indices dipped and credit spreads widened on reports of a potential removal, but both recovered quickly as subsequent comments downplayed the likelihood of action. Treasury yields moved modestly higher, consistent with a rise in term premium, but not dramatically so. This suggests that investors view the removal of the Fed chair as a headline risk rather than a near-term base case, and given the legal protection for Fed leadership and an institutional precedent, the probability of such an event is low.

More telling is the market’s resilience: credit spreads remain historically tight, and equities are grinding higher due to the growing confidence of a continued economic expansion. Financial conditions have actually eased over the past few months, driven by a weaker dollar and falling short-term interest rates.

Additionally, volatility across asset classes has remained relatively subdued compared to historical norms. The chart below illustrates the annualized one-month volatility for high-yield corporate bonds, Treasuries, and US equities — all of which are currently exhibiting lower levels of volatility than their respective 10-year averages.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

Meanwhile, tariffs remain a politically charged issue, but markets have shown far less sensitivity to each successive headline. That could be due to several factors: services and commodity-driven disinflation continue to drive aggregate inflation readings, imports make up a relatively small share of US GDP, and many importers preemptively frontloaded supply in the first quarter in anticipation of tariff escalation. The result is a market that increasingly sees trade policy as background noise rather than a primary macro driver.

Rather than fixating on the politics of central bank governance or trade disputes, markets appear focused on fundamentals: a backdrop of front-loaded fiscal stimulus, falling inflation, and the growing expectation that rate cuts are a matter of “when,” not “if.”

In many ways, the current environment resembles a “Goldilocks” economy — not too hot to reignite inflation fears, and not too cold to threaten growth. While risks remain, recent price action reflects a market narrative driven by the interplay between fiscal policy, disinflation, and Fed easing, with investors leaning into the idea that the macro backdrop still supports strength across the real economy and asset markets.

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Second quarter earnings from the big six US banks surprised to the upside, revealing a resilient core: strong trading results, stable credit quality, and a late quarter rebound in investment banking activity. Despite macro headwinds and cautious expense management, most banks beat expectations — thanks to healthy consumer behavior, rising loan demand, and fortified capital. But the real story was a focus toward high-quality, fee-driven segments like wealth management. The takeaway? Capital strength is intact, but the winners are those leaning into durable, diversified revenue streams.

Morgan Stanley beat expectations, with Equity trading up 23% year-over-year — its second-best quarter ever. Wealth management brought in $59.2 billion in new assets, while IB revenue declined but less than feared, with most activity occurring late in the quarter. Expenses were slightly elevated, and CET1 came in at a strong 15%.

Goldman Sachs delivered a solid beat, with FICC sales and trading leading the way. Net revenue rose 15% year-over-year, and IB revenue surprised to the upside, particularly in advisory. Assets under management grew 12%, while provisions were below estimates. CET1 was 14.5%.

JPMorgan beat across most major lines, including FICC, equities, and all segments of investment banking — advisory, debt, and equity underwriting. It raised its NII forecast but also its expense outlook. Loans and deposits both beat expectations, and provisions and charge-offs were lower than anticipated. Compensation costs ticked higher, and CET1 came in at 15%, slightly below the 15.4% estimate but still healthy.

Wells Fargo beat on EPS but missed on Net Investment Income and cut its NII forecast. NII is now expected to be flat year-over-year. Assets surpassed $1.95 trillion for the first time, and like JPMorgan, the bank saw a pickup in IB activity in the latter half of the quarter. CET1 remained stable at 11.1%.

Citigroup beat expectations, with traders posting their best second quarter in five years — FICC rose 20%. IB fees climbed 13% year-over-year, and US personal banking had its strongest Q2 ever. Credit costs rose but were below expectations, and the bank teased a new premium card offering to rival Amex. CET1 stood at 13%.

Bank of America delivered a strong beat in Q2. Trading was a standout, with FICC up 19% and equity trading rising 9.6%, marking a record second quarter for the trading desk. Net interest income exceeded expectations, supported by resilient consumer spending and improving asset quality. CEO Brian Moynihan noted that consumers remain healthy and commercial borrower utilization rates are rising. Investment banking revenue declined 7% year-over-year, though activity picked up meaningfully in the second half of the quarter. Provisions came in below expectations, and the bank reported a CET1 ratio of 11.5%.

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

The US Labor market has remained remarkably resilient despite concerns about job cuts in the government sector and broader economic headwinds. Nonfarm payroll (NFP) growth has averaged around 150,000 per month over the past 3 months — closely aligning with the breakeven pace needed to maintain the unemployment rate near its historically low level of 4.1%. This steady job creation underscores the underlying strength of the economy, even as headline risks continue to dominate the narrative.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, BLS, St. Louis Fed

While geopolitical tensions, tariff uncertainties, and other macro risks persist, hard economic data continues to point toward ongoing expansion. Financial markets are echoing this optimism: equities are hovering near all-time highs, and corporate credit spreads are pricing in minimal risk. As shown in the chart below, corporate bond spreads are near the lowest percentile relative to the past 25 years — indicating no pricing of a near-term default cycle. In contrast, Agency MBS spreads remain relatively attractive, sitting at the 61st percentile, suggesting potential value in that segment.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

Ultimately, yield levels remain the dominant force behind investor flows. The chart below highlights the current percentile ranks of yields across various fixed income sectors. Investment grade (IG) corporates, for example, are yielding in the 64.5th percentile relative to the past 25 years — well above average. This elevated yield environment continues to attract inflows, particularly from investors seeking high-quality income opportunities in a low-volatility backdrop.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.