You may have played the swimming pool game where the blindfolded “it” called “Marco” and players above the water surface were required to respond “Polo”, giving away their location. It’s a decent analogy for where we are pricing stocks and bonds right now, with one big difference. This game we’re in is not being played in a swimming pool; it’s being played in an ocean – actually several oceans.

 

Does one disappointing jobs report make a trend? Chair Powell of the Federal Reserve would remind you that the Fed is “data dependent”, not “datapoint dependent”. Data means more than one.

 

Entering the current environment stocks were not cheap as measured historically, trading at 21 times forward earnings. Historical average is about 16 times. Bonds had largely priced in all of 2024’s and 2025’s rate cuts.

 

Now stocks are looking more reasonably priced while bonds look expensive.

 

What would move the Federal Reserve to cut their benchmark interest rate before the next meeting in September? Something important breaking.

 

Nothing important has broken—yet. Some traders have taken on some pain from some other traders. Long term investors have done some rebalancing.

 

Today, the Institute for Supply Management reported that the Services Purchasers Manager Index expanded in July. Expansion does not indicate an economy that is collapsing.

 

We’ll be watching for something to break, but meanwhile evaluate the current volatility as an opportunity perhaps to rebalance your holdings more favorably back to model. That’s what you do when market action becomes unmoored from a trend.