💰 TINA Is Dead. Bonds Killed Her.

THE MAIN EVENTThe Bond Store Reopens 💵

The 10-year Treasury yield closed at 5.24% on Thursday, a day after hitting 5.29%, its highest close since 2002. The 30-year closed at 5.61%.

The 10-year jumped more than half a percentage point in September alone, its biggest monthly rise since 2022.

I don't write about bonds often because, let's face it, they're usually boring. But today, bonds are reshaping the competition for every new investment dollar.

That affects your portfolio, even if you've never bought a Treasury.

Bond Math 101 🧮

Let's say you buy a $100 bond paying 4% a year.

If new bonds start paying 5%, nobody will buy yours for $100 anymore. Its price needs to fall for its total return, including the $100 repayment at maturity, to compete.

That's why yields and prices move in opposite directions.

How far prices fall depends on a bond's "duration." The greater the duration, the more sensitive its price is to changing rates.

For example, a 10-year Treasury loses roughly 7% of its value when yields rise 1 percentage point.

That math explains the recent damage:

• TLT owns Treasuries maturing in 20 years or more, giving it especially high duration. It recently closed below $80 for the first time ever and is now down 36% in five years.

• The broad U.S. bond index's losses have been milder. Still, a dollar invested there at the start of 2021 is now worth about $0.95, compared with roughly $2.20 in the S&P 500.

Why Is Everyone Selling? 🤷

Nobody fully agrees. Here are the three leading theories.

1) It's a boom.

This is the Fed's view. At his last press conference, Fed Chair Kevin Warsh pointed to a strong economy. Although inflation is still 3.4%, growth was just revised up to 2.2%.

A resilient economy with persistent inflation makes investors think borrowing costs may stay high or rise further.

Meanwhile, massive AI investments require borrowing, putting companies and the government in competition for the same pool of money. As a result, borrowers have to offer higher yields.

2) It's a squeeze.

Skeptics see the opposite. Yahoo Finance's Brian Sozzi argues the economy is "weakening under the tightening grip of inflation."

Investors may have accepted a 4% bond yield when inflation looked headed toward 2%, leaving them with a 2% "real" return.

With inflation running between 3% and 3.5%, that deal looks much worse. Investors may now demand yields closer to 5% or 5.5% to preserve the same real return.

3) Washington needs more buyers.

The federal government is running a nearly $2 trillion deficit.

That means an enormous supply of new debt must find buyers. When the supply of bonds rises faster than demand, bond prices fall and yields rise.

In short, the Treasury must offer better returns to attract new lenders.

When Bonds Get Interesting 💡

The selloff has created a much better deal for new buyers.

According to J.P. Morgan, a bond index's starting yield has been a remarkably good predictor of what it earns over the next five years. Today's yield of about 5.6% points to roughly 5.7% a year.

In other words, the "40" in a 60/40 stocks and bonds portfolio is finally bringing something to the table.

The Pull On Stocks 🧲

The S&P 500 trades at about 19 times next 12 months' expected earnings. Flip that around (1 ÷ 19) and stocks "yield" about 5.3%. A 10-year Treasury now pays roughly the same.

That creates competition for stocks.

Some investors may move money from stocks into bonds. Others may simply split their next investment between the two instead of putting it all into stocks.

For years, the case for stocks came down to TINA: there is no alternative. As Fidelity's Tom Stevenson put it this week, "bond yields above 5% have certainly brought the TINA era to an end."

That doesn't mean a stampede out of stocks. Earnings are still growing quickly, and stocks offer upside that fixed-rate bonds do not. But stocks no longer get a free pass.

The Bottom Line 🧭

Investors can once again reduce risk without totally giving up on returns.

• If you'll need the money on a specific date: Buy a Treasury or TIPS that matures around then. Its price may bounce along the way, but hold it to maturity, and you know exactly what return you're getting.

• If you want to take some risk off the table: Bonds yielding more than 5% let you trim stocks without settling for the near-zero returns of a few years ago.

The difference adds up too!

Assuming the interest is reinvested, $10,000 compounding at 5.24% grows to about $16,700 in 10 years. At 2020's 0.93% yield, it would have reached only $10,970.

Bonds are still boring. But right now, boring pays.

MARKET MOODMaybe AI Didn't Eat Consulting After All 🍽️

Winners

Accenture

$ACN  ·  Cap $129.9B  ·  Week to date ▲ 20.6%
In June, Accenture's forecast for the quarter sank the stock 18% in a day on fears that AI is eating consulting. On Thursday, it reported $18.7 billion in revenue, above the top of that forecast, and the stock jumped 16%.

Synopsys

$SNPS  ·  Cap $94.0B  ·  Week to date ▲ 15.2%
Synopsys makes the software most chips are designed with. It just signed a $1 billion-plus deal with Amazon and a partnership with OpenAI, then forecast about 15% sales growth next year, above Wall Street's estimate.

Applied Materials & Lam Research

$AMAT / $LRCX  ·  Cap $420.1B / $425.6B  ·  Week to date ▲ 9.1% / ▲ 7.9%
Micron's sales popped almost 5x year over year, and it announced plans to spend more on factories next year. Applied Materials and Lam Research are the beneficiaries of that build-out because they sell the machines that go inside those factories.

Losers

Fair Isaac

$FICO  ·  Cap $14.3B  ·  Week to date ▼ 23.3%
Fannie Mae and Freddie Mac's regulator announced on X that mortgage lenders will be able to use rival VantageScore without a penalty. That cracks FICO's near-monopoly on mortgage scores, so the stock fell 27% in its worst day since 1989.

Northrop Grumman

$NOC  ·  Cap $68.5B  ·  Week to date ▼ 5.6%
Even with Boeing stumbling over a 737 MAX autopilot glitch, the Navy still picked it over Northrop Grumman to build its next carrier fighter. For Northrop, that's a $20 billion-plus contract that got away.

Apple

$AAPL  ·  Cap $4.82T  ·  Week to date ▼ 3.2%
Bank of America warned that AI agents like Meta's Muse could do people's shopping for them. Apple would still sell the phones but could lose its cut of what people search for and buy on them. That hit the stock harder than a record $5.7 billion patent verdict.

FAST FACTSChecks, Cuts, And Cheaper Coverage 💸

💳 Equifax Could Pay You Up To $280: About 4 million people whose scores it got wrong in 2022 can file a claim by December 28. [Read]

🎓 More Time To Cut Your Student Loan Rate: Federal borrowers who enroll in autopay by December 31 can lock in a 1-point discount. [Read]

🩺 Medicare Advantage Gets Cheaper: The average premium should fall 16.5% next year, from $14.37 to $12.00 a month. [Read]

🏙️ San Francisco Rent Hits A Record: A one-bedroom now rents for $4,400, up 25.4% in a year and nearly matching New York. [Read]

🏘️ New Homes Undercut Older Ones: Newly built homes have cost less per square foot than existing ones in 17 of the past 19 months. [Read]

📱 Robinhood Announces Weekend Trading: The trading app plans to open select stocks and ETFs to weekend trades early next year. [Read]

💊 Lilly's New Combo Beats Zepbound: Patients lost up to 23.3% of their weight in a 48-week trial, versus 14.8% on Zepbound alone. [Read]

🤖 Anthropic Commits $518 Billion To Compute: Its leaked prospectus shows about 80% of that AI spending can't be canceled. [Read]

THE ODDSBetting On Brains, Billions, And Beijing 🎲

CHART OF THE WEEKStocks Took Over The House 🏠

As recently as 1990, Americans held about twice as much in home equity as in stocks. Today it's nearly the reverse.

Stocks and mutual funds now make up 34% of U.S. household net worth, the highest share since at least 1945. Home equity is 18%.

But that's the national average.

The Fed's wealth data shows the flip happened at the top. Here's how much of each group's wealth sits in stocks versus home equity:

• The richest 1%: 55% in stocks, 10% in home equity.

• The next 9%: 36% in stocks, 17% in home equity.

• The next 40%: 14% in stocks, 31% in home equity.

• The bottom half: 9% in stocks, 39% in home equity.

Historically, peaks like this haven't lasted.

Stocks' share hit highs of about 26% in 2000 and 29% in late 2021, and a bear market followed both. Housing's share peaked in 2005, right before the housing bust.

WORDS TO REMEMBEREvery Month Is October 🧠