The bond market delivered a shock to the system this week. After quietly ending the trading day at 3.05% on Tuesday, the 10-Year U.S. Treasury yield exploded to the upside on Wednesday by 10 basis points to close at 3.15%. The benchmark Treasury yield reached as high as 3.21% early Thursday before settling back into the afternoon. This is a big move for bonds in just two trading days – think 70 points falling off the S&P 500 Index in a similar amount of time – and it raises an important question that many bond investors are left pondering as we head toward the end of the trading week. Is the long elusive inflationary beast finally being unleashed on capital markets?

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The U.S. stock market remains strong and resilient. While the expected returns on the S&P 500 Index over the next decade are modest at best and likely to come with bouts of sharp downside volatility, the short-term outlook remains constructive. Today’s stock bull market appears set to continue running higher in the coming months for several reasons.

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The U.S. stock market outlook is increasingly bleak. It’s not necessarily bleak for the next few months or over the next year for that matter. In fact, I continue to believe the U.S. stock market remains the best place in the world to concentrate equity exposures with a broad asset allocation framework for now. But the longest bull market in history by some measures will eventually meet its maker. And what lies after may prove most unpleasant for the zillions of investors that have piled into passive index products over the last several years. Are you ready?

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Political risk suddenly surfaced in the U.S. stock market on Tuesday. It was one-two punch of breaking headline news. First, the President’s former personal lawyer Michael Cohen pleaded guilty to criminal charges and directly implicated the President in payments made “for the purpose of influencing the election”. On the very same day, former Trump campaign chair Paul Manafort was found guilty by a jury on eight counts of fraud. These two headlines sent the S&P 500 Index down more than 20 points from the all-time highs it spent nearly seven months climbing all the way back to reclaim. Depending on how things unfold, could political risk become a mounting problem for the U.S. stock market going forward?

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The U.S. stock market finally did it. Or did it? On Wednesday, August 22, the U.S. stock market as measured by the S&P 500 Index will become the longest bull market in history. Fantastic. Given how far we have come from the near destruction of the financial world so long ago now, what have we learned along the way to apply to the remainder of the journey that lies ahead?

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