Yields Need Stabilizing, So Does the World

Will surging bond yields stabilize, helping the markets? Jason discusses this and how we can look at the 10 & 30 yr. treasuries for hints.

In this week’s edition, we also discuss:

1. Chevron’s purchase of Hess Corp. and what that means for oil in the coming decades.

2. Screaming hot GDP, or is it actually under the hood?

3. The latest on inflation from the PCE report. Is it cooling?

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All performance referenced is historical and is no guarantee of future results.

All indices are unmanaged and may not be invested into directly.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Investing involves risk including loss of principal.

Jason Jacobi & Mark Boyer are registered principals with, and securities and advisory services offered through LPL Financial. A Registered Investment Advisor. Member FINRA/SIPC.


Jason Jacobi, CFP® (00:00.978)

Good morning, everyone. Jason Jacoby here with the closing bell for

October 27th. Hopefully everyone’s having a good week. It has not been

a good week in the stock market to say the least. At the time of

recording on Friday morning, all major indices are down about 2% or

even a little bit more. The Dow and the Russell are both negative for

the year. The Dow is down about 2.28% again at time of recording on


And the rest of 2000 is down about almost seven and a half percent,

which are your small cap companies, your small mom and pop shops, even

though they’re not mom and pop shops, because they are still

multimillion dollar companies. But anyway, we have some interesting

stuff for you this week. Big inflation report. We’ll talk a little bit

about oil and Chevron’s purchase Hess. We’ll talk about

GDP numbers for third quarter came out. So we’ll talk about that, what

this means. It’s been a rough few weeks to say the least, but let’s

dive right in to the closing bell. All right, so first thing we wanna

talk about here is 10-year treasury, okay? And the correlation to the

30-year treasury rate, which we monitor as well. Okay, so this week,

we actually had a deepening sell-off in the treasury note market,


10 year T note to above 5%. Now I did settle back at about 4.8%, which

is where it’s currently sitting. And that 5% kind of resistance level

is very key before we have a majority or a potential move even higher

than the 5% ceiling, which is really important to hold. So let’s talk

a little bit about that, like what that means. So basically,

You know, yields increase when bond prices decline. So you have

investors selling off again with rates where they’re at. They’re

selling their current bonds at discounts, increase yields. That way

they potentially maybe want to capitalize on a different asset class

or want to raise cash, or they want to go into the market and buy a

new 10 year treasury note at with higher interest rates, a higher

coupon payments. So again, there’s multiple reasons to.

Jason Jacobi, CFP® (02:22.082)

to seeing this, but what we wanna see is the 10-year treasury note. We

wanna see those, those bond yields stabilize because they go up really

quickly. I mean, if you look at last year or at the beginning of this

year, excuse me, was 3.8% rate for a 10-year, 3.8%. We’re up at almost

five. That’s a big, big jump, 120 basis point jump. All right. So.

At this point, in correlation to 30 years, so you look at the 30 year

treasury rate as well, which is again, 30 year treasuries, it’s at

about 5.01%, as you can see on the chart on the screen here, or if

you’re listening, it’s at 5% as well. It’s a little bit higher than

the 10, it’s not inverted anymore, but the 30 year is sitting at 5%.

So again, holding that 5% mark and seeing these long-term rates

stabilized a little bit is gonna be key, I think for the equity

markets as well.

to get people to come back in and buy as well because the risk premium

right now, the spread on the earnings yield on the S&P 500 and what

you’re getting in treasuries is this small as it’s been in quite a

long time, I believe since the early 2000s. So we really want to see

that 30 year hold tight because if it runs north of five towards six,

that could spell bad news for the equity market. So again, we’re

monitoring this.

Don’t think it could happen, especially with the data that came out,

which we’ll get into the PCEs today, a personal consumption

expenditure report, which is the Fed’s preferred inflation gauge

because it talks about income and spending. But again, we’re kind of

monitoring the treasury situation. All right. So let’s talk about oil,

drill, baby drill. No, I’m just kidding. But in all seriousness,


Oil is a big part of the world. Okay. Um, it, and I don’t see that

changing, going anywhere. Um, especially with the amount of oil that’s

used to make electric car batteries as well, uh, and again, this isn’t

a political statement. This is just common sense. I have nothing

against people driving electric cars. If you, if you enjoy that or,

you know, you think you’re, you’re doing your part for the environment

and whatever you think, again, this isn’t a personal condemnation, uh,

this is just facts here.

Jason Jacobi, CFP® (04:42.494)

Okay, so Chevron’s making bets on oil. All right, so Chevron just

announced, which again, you can read this in our newsletter as well if

you wanna be added to it and you’re listening to our podcast here or

watching this on YouTube or on our website, you could be added to our

mailing list. If you go to boyyourfs.com and scroll to the footer, the

bottom of the homepage, you can actually subscribe to our newsletter

on there, which is released weekly. So we talk about this in our

newsletter, but Chevron actually acquired Hess.

corporation and an all stock deal valued at about 53 billion. Once you

tag in liabilities a little bit, it’s actually closer to $60 billion.

So they basically, they’re trying to combat the purchase by Exxon of

pioneer natural resources. Um, so basically they’re just trying to be

strategic at this point and keep up with, with Exxon. Now what’s

interesting. So.

You know, oil and gas companies are robust, right? They’re financially

robust right now, huge earnings. Again, supply and demand, oil price

per barrel has been a lot higher recently with supply cuts by OPEC.

What’s interesting about this deal, so again, what this chart kind of

puts into perspective. So the forecast and even historical comparisons

since early 2021, you can see here, OPEC does about 30, 35 billion,

million, excuse me, million with an M.

million barrels per day. Non-OPEC, liquid refineries or gas companies,

they actually do close to 70, and they’re projected to do close to 70

million barrels per day, over double what OPEC can do. And why this

Chevron purchase of Hess doubles down on this is because there’s three

partners. So off the coast of Guyana, there’s an estimated 11 billion,

that’s with a B,

barrels of oil and gas reserves. Okay, they’re located off the coast

of Guyana. I hope I’m pronouncing that right. I apologize if I’m not.

There’s three partners in the rights to that oil and gas reserves,

okay? It’s Exxon, it’s now Chevron, because Hess had a third share of

that. So now it’s Chevrons. So the two largest oil companies, gas

companies in America.

Jason Jacobi, CFP® (07:05.102)

And the third is China’s CNOOC. So those three, again, I have a third

share, 33% approximately of that 11 billion barrels of oil that’s

sitting off the coast of Guyana. So with that being said, again, we

can be energy independent if we utilize our refineries, if we have

them open, if we’re actually drilling, which is gonna take pressure

off of inflation as well.

And again, this is just based off of facts and numbers. Okay, people,

this isn’t political whatsoever. But it’s going to relieve a lot on

the economy and we can actually be a net exporter of energy as well,

help out Europe who’s tied really closely to Russia, which obviously

last winter, if you remember their energy and their, their prices to

heat their homes in the winter went up three, 400%. Okay. So just want

to talk about that. That’s some big news in the oil field, in the oil


And just to see where that goes will be quite interesting, but big

purchase, almost $60 billion by Chevron of Hess. All right. So let’s

talk about GDP, third quarter GDP growth. All right. So forecasters

estimate that the third quarter GDP was 4.9%. Okay. This is the first

read. Okay. Then they kind of go through it. They do an audit of the

numbers multiple times. So this is the first reading and it came in at

4.9%. That’s insane people. Okay.

But not so insane when you take into account that consumer spending in

the third quarter was skyrocketing, right? I like to call it

funflation is because you got the COVID hangover, you have people that

saved in excess of 37% increase in household savings during COVID,

during the pandemic, which now that has run out and people are

starting to spend on credit, delinquencies are going up. You’re seeing

the trend reverse in a not so good way. But

consumer spending was still strong this summer, which is the third

quarter. People were flying, going to concerts, Taylor Swift tickets

were out insane, which I don’t get personally, but people love her

music and her productions. So people were paying almost a thousand

bucks a ticket. Maybe some of you did or bought it for your sons or

daughters, which is crazy. But I know you love your kids, or maybe you

just love her that much yourself. But anyway, so Funflation was here.

Jason Jacobi, CFP® (09:30.602)

you know, consumer spending accounted for over half of that third

quarter GDP number. What’s really interesting though. So I was

actually at a luncheon the other day with one of the top asset

managers in the world. And they, again, so what they do is they go,

you know, around the world, they’re the ones at the company’s doorstep

or in their conference room, their board room, talking to CEOs, CTOs,

CIOs, CFOs, the C-suite executives about the companies, innovation,

what they’re working on. They look at their books and records, audit


to see if it’s a good investment opportunity for their investors like

you and I. So what was interesting is that one of the bond managers

that we were talking to, she said, well, if you look at the third

quarter GDP, which came out at 4.9%, what’s interesting about that is

if you remove the government stimulus, so all the stimulus government


Jason Jacobi, CFP® (10:27.61)

Ukraine, the fund staying open to pay off their debts with that

stimulus that they received, the money they received for issuing that

debt, again, at higher interest rates, people were clamoring for it.

If you strip that out, if you remove the stimulus, GDP would have been

negative the last two quarters. Quite interesting. So again, we

measure recession. And again, this chart says no, 2022 is not a

recession because consumer spending

and non residual investment was still growing. Again, it’s up for

debate, but technical definition, and I know a lot of things factor

into that. But if you have two contractions, two contractionary

periods in GDP growth, in GDP, two contractions in GDP, say that

right? Not growth, contraction. In two consecutive quarters, that’s

technically a recession. So again, I don’t want to beat this.

you know, like a dead horse here. I really don’t, whether you believe

it was or was not two quarters usually means technically, at least

when we were starting to be financial advisor on the test was two

quarters of negative GDP. So with that being said, we would have

actually had that this last two quarters, which I mean, again, if

you’re looking at our economy, a labor market was strong. People were

still spending in, which again, I think is due to a lot of that

stimulus and savings.

and people buying on credit, which could be artificial, which we

should start seeing that slow down. We should start seeing that slow

down, which will lead us into our next topic. But again, contributed a

lot to this GDP was consumer spending. So again, to be seen, again, I

think we’re gonna see the consumer starting to hurt a little bit more.

I think we’re gonna see the economy slowing down, at least on the

consumer side. Manufacturing actually went to expansionary territory


50 on the ISM manufacturing index this past month, which is good.

Right? So again, they’ve been contractionary for quite a long time,

which equals recessionary, but it’s actually been quite positive this

past month. So that’s kind of that lagging industry has started to

pick up a little bit. We should see services, which has been kind of

the prop, the strong leg of the economy. We should start seeing that

cool down as summer.

Jason Jacobi, CFP® (12:47.266)

Kind of has subsided here. We’re in fall. It should slow down. Markets

have kind of priced in higher for longer interest rates. The feds are

going to be cutting rates anytime soon. And then you’re seeing the

consumer start to get a little more worried because leading into this

next topic, personal income actually lagged spending this past month

for September. Okay. So people are spending more than they’re making,

which isn’t good. Again, and they’ve run through

A majority of America has living paycheck to paycheck has run through

their savings, which is sad to say. But again, it’s not like we’re the

US government where, hey, we’re just going to keep raising the debt

ceiling and spending more than we’re bringing in. That’s not how the

real world works. That’s just not, and all of us consumers know that.

So while you might be saying, oh, inflation seems like it’s coming

down, which it showed in this latest PCE report.

Um, if you look at the bottom right of the chart there, which we’d

like to measure year over year, compare where we are, um, from a

month, one year ago, it actually came down. Um, so PC came in at 3.4%

for September from last September. Um, and then core PC, which

includes, which excludes volatile food and energy costs came in at

3.7, which was down from 3.8. So again, this might be a misprint.

August, um, PC was actually.

I believe 3.9, unless they just audited that and lowered it, but I

believe it was 3.9 for August down to 3.4 for September. So again,

inflation is slowly trending in the right direction. And you’re

saying, well, why am I still in my pocket? And when I go to the

grocery store, why am I still paying 20% more for groceries? My mom

just told me the other day, she went to grocery shopping and she

doesn’t eat very much. She’ll tell you that herself. Hey, mom, I’m out

there if you’re listening. But yeah.

But basically everyone’s still spending more across the board on a lot

of different things from food to gas, especially if you’re in

California, um, to services again, fund inflation. So again, we should

start seeing that moderate again over the next year as people stop

spending, um, and supply hopefully increases, which is house, the

economy works, supply and demand. Every lot of services.

Jason Jacobi, CFP® (15:09.702)

not goods, but services have been in demand for quite a long time. Now

we should start to see that change a little bit and start to see some

prices come down hopefully as people get a little bit more worried

about, uh, about their, their incomes and their spending and their

budgets. So, uh, that’s the last thing I wanted to touch on again, not

as long as our usual we’re missing a mark on this week’s closing bell.

He’s off, uh, saving the world, but, um, but, uh, we’ll see him again

next week. And if you have any questions again, always an honor to

serve you.

If you’re listening, your first time listener, thanks so much for

listening. If you’re continued listener or watch watcher of our

videos, we love you. We’re thankful for you. And, and again, if you

have any questions, feel free to reach out, call, text, email,

compliant texting LPL. If you’re listening or compliant promise, in

all seriousness, let us know if you need anything. Okay. Y’all have a

great weekend. That’s this edition of the closing bell. Jason Jacoby.

We’ll see you next week.

Subscribe to Our YouTube Channel