Momentum and liquidity create our current Road of Trials. Markets celebrate, policymakers cling to “resilience,” and each weak data point is waved away as noise. These are the tests every cycle (and hero) must endure: minor fractures that hint at a coming break.
The bubble can mask weakness for a time, but the gap always closes. Asset prices are tethered to growth, and when the economy bends, markets eventually break. Here are some of the latest cracks:
- Construction spending has fallen in 10 of the past 11 months, a sector that usually leads the broader cycle.
- The bond market is now fully pricing in two cuts by year-end and another three to four in 2026, which would drag the Fed Funds Rate below 3.00%.
- Adjust for the falling labor force participation rate, and true unemployment would be 4.9%. After jobless spring months and weak openings data, expectations are mounting for three cuts this year and more in 2026.
- Freight stress is building: tender rejections are climbing above 2022 levels, not because demand is booming, but because capacity is shrinking. On the global side, international container bookings are down 17% YoY, as prestocking fades and the trade war drags on.
Taken alone, each data point can be dismissed. But together, they paint the same picture: the economy is cooling, the cracks are widening, and the Fed will be forced to move.
This week, we’re listening closer to what the bond market has to say, dissecting the latest JOLTS report, and of course, offering some wisdom for fellow travelers on the journey.
The Bond Market Speaks
The bond market has been flashing red all summer, and the signals are only getting louder. The SOFR curve, the backbone of trillions in loans and swaps, has inverted just like its Eurodollar predecessor did ahead of the 2000, 2007, and 2019 cutting cycles. Contracts further out keep slipping lower, showing conviction that the Fed’s ceiling is in and that easing will be a cycle instead of a one-off.
At the same time, the 3-year Treasury yield has collapsed below the Fed’s short-term rate and is now nearly identical to GDP growth forecasts, a setup that in past cycles foreshadowed recession and panic cuts.
And here’s the paradox: even as markets fully price in multiple rate cuts (a 90% chance of one on September 17, another 2–3 by year-end, and more in 2026), long-term yields are rising. The 30-year Treasury is back at 5%, levels last seen during the 2008 crisis.
Global central banks have slashed rates aggressively, with 74% cutting in 2024 and 15 cuts in May 2025 alone, but yields remain pinned at 30+ year highs. Investors are demanding higher term premiums because of exploding deficit spending, relentless bond issuance, and inflation creeping back above 3%.
The takeaway is stark: the Fed can cut, and global policymakers can ease, but the bond market isn’t fooled. It’s already pricing in stress, signaling that fiscal excess and sticky inflation have broken the traditional playbook.
According to the history books, when GDP data and bonds diverge, when central banks cut but yields climb, it’s the bond market you trust. It’s seen the cracks first every time.
JOLTed Awake
On the surface, July’s JOLTS (Job Openings and Labor Turnover Survey) report looks calm: 7.2 million openings, quits steady at 2.0%, and layoffs unchanged at 1.1%. While this doesn’t scream panic or crisis, beneath the headlines, the labor market is cooling. It could be just enough to give Powell exactly what he needs: a cover to cut rates without looking desperate.
Health care openings fell, a rare sign of softness in the sector that has been the most reliable labor market engine for over a decade. Arts, entertainment, and recreation also slipped, hinting at pressure on household spending. Construction saw a notable drop in quits, a classic leading signal of stress when credit tightens and demand weakens. Transportation and warehousing cooled as well, pointing to strain in logistics and goods flows.
Meanwhile, layoffs remain low, allowing the Fed to argue that wage pressures are easing, worker bargaining power is fading, and the labor market is “rebalancing” rather than collapsing. Revisions to June (lower openings and higher layoffs) sharpen the downward tilt, while stress across the economy is becoming harder to ignore.
There’s a whisper of fragility in these numbers, and that whisper may be all Powell needs to act now rather than risk cutting too late.
Returning from Illusion
Eventually, denial gives way to The Road Back. Asset prices converge with the economy, bubbles deflate, and policy pivots. Like every hero’s journey, the return is inevitable: gravity wins, illusions break, and the truth of the cycle reasserts itself.
For Factors, ABLs, and banks, the assignment is now to buckle down your collateral. Here at Dare, building and maintaining strong relationships with clients is one of our non-negotiables. In your own business, it’s these close relationships that make all the difference in times of stress.
One of the best ways to serve clients amidst uncertainty is to get in front of issues before they blow up. Through our NN6 portfolio management software, you’ll get proactive alerts sent to you automatically to identify problems, manage risk, and keep communication timely and efficient.
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Ready for the next leg of the journey? Give us a call.
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Until next time,
