One look at the U.S. dollar's continued climb should tell you all you need to know about the war, inflation, bond prices, and the present gloomy sentiment of most Americans. What strikes me most is how little confidence any of us have in the U.S. economy. And yet, the S&P 500 Index hovers just below all-time highs while technology makes new highs.
As we enter the last quarter of 2026, a long calendar of market-moving events lies before us. Foremost on that pile is what, if anything, Iran will do to disrupt the midterm elections. They have already made substantial progress, if the polls are any guide. Despite the administration's best efforts, oil prices (think diesel and gasoline) remain at uncomfortable levels.
This is despite news reports that oil is now flowing at pre-war levels out of the Middle East. Between new routes, more tankers with Navy escorts passing through existing waterways, and fewer military incidents, oil flow is recovering. Why, you might ask, isn't that good news reflected in a deeper pullback in oil prices?
One reason is that it costs more to deliver energy to its destination. Longer waterways, ship-to-ship transfers, pipelines, and trucks rather than tankers add extra costs. Pre-war, those costs were around $4 a barrel. Today, the same quantity of oil costs more than $18 a barrel.
In addition, global traders are maintaining a hefty war premium on energy prices between now and after the elections. Even more so since a whole parcel of Marines and carriers are heading for the Gulf. Barring some real breakthrough between the parties (signed, sealed and delivered), we can expect higher prices at least until then.
There was some good news announced on Friday, thanks to the president's request that Europe and the G7 free up 120 million barrels of diesel fuel and oil. The G7 has agreed to release 100 million barrels of both from storage on Friday. That has sent diesel prices down, at least temporarily, and oil prices fell by 3.1 percent to below $90 a barrel on the news.
During the week, higher inflation expectations pushed bond yields higher. The government's 30-year bond was above 5.65 percent, and the 30-year mortgage rates are now over 7.28 percent. The benchmark U.S. Ten-year Treasury had surpassed 5.30 percent, a level where many traders expected a "top" in yields. They were right.
Trump's pre-election moves to lower fuel prices, combined with a weaker non-farm jobs report, created the perfect storm to force the bond vigilantes to cover their bond shorts. The last indication I saw for the yield on the 10-year Treasury was just below 5.25 percent. That is a big move in the bond world! You have to hand it to Trump, Bessent, and Warsh; they know how to engineer the results they want in the financial markets.
Kudos to Kevin Warsh for this week's Personal Consumption Expenditures (PCE) Index, the Fed's No. 1 inflation indicator. PCE inflation dropped to 3.4 percent, its lowest level in six months. Most of the good news came from a change in how the index is calculated. Prices for software, some accessories, and money management fees were pared back to give a more "accurate" reading.
Readers may recall I wrote about these expected changes, which were instituted by Stephen Miran, former chief of Trump's Council of Economic Advisers, who resigned to join the Fed as a Trump appointee. My prediction that his work would be released and provide a better read on inflation before the election proved accurate.
The non-farm payroll report for September released on Friday (leaked overnight) was weaker than expected. The economy added only 29,000 jobs (88,000 expected), and August's upside surprise of 162,000 was revised to 133,000 jobs. Weaker job numbers mean less chance the Fed hikes rates in October, which means higher stock markets.
However, I warned readers more than a month ago not to trust government-released statistical data. I expect more of the same as government data becomes more politicized. I wouldn't be surprised if the next CPI and PPI data for September, released in the middle of this month, show an improvement. If so, discount it entirely.
As for the markets, the Nasdaq is clearly supporting the markets. Outside of the AI trade, most stocks have been falling. Readers know I had been cautious from August into September. During that time, the equal-weight S&P 500 was down 6.6 percent, while the S&P was flat, the small-cap Russell 2000 lost 8.9 percent, the Dow fell 6.6 percent, and the Transports fell 15 percent. The Nasdaq, however, was up 2.5 percent. Friday's bounce saved the averages from going negative this week. However, Nasdaq gained almost 1 percent.
I expect that the administration will take out all the stops to keep markets supported between now and the midterms. See this week's maneuvers: hyping the president's "Super Intelligence" conference, easing diesel and oil prices, yields "topping," and economic data (PCE and jobs). Clearly, technology in general, and AI stocks in particular, will lead the charge from here.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
It's as if the world is against homebuilding. As mortgage rates top 7 percent, a combination of higher prices for key inputs, thanks to tariffs and the Iran war, has already decimated the sector. And yet, there is worse news for builders. ICE-inflicted labor shortages are suffocating profits and growth.
From the East to the West Coast, home builders are complaining bitterly about the administration's current immigration enforcement efforts. This year, ICE's efforts to redouble its arrests at the insistence of the White House have resulted in a surge of arrests of "illegal aliens."
And while the numbers may satisfy some in the country, they are causing consternation among the nation's homebuilders. A survey by John Burns Research and Consulting, which tracks market trends in the industry, found that the administration's immigration actions are causing severe labor shortages. This worker shortfall is driving up costs and delaying cycle times for new home construction.
Three straight months of record arrests this summer have convinced many legally authorized workers across the housing sector to stop showing up for work. Many fear that despite their legal status, if they are caught up in an ICE sweep, they could be easily deported or spend months in detention and incur huge legal fees before their status can be adjudicated.
They point to the fact that in recent months, ICE has coordinated with immigration courts to dismiss many noncitizen removal cases and immediately arrest individuals so they can be processed for expedited removal. As a result, a noncitizen but legal immigrant has little opportunity to contest or seek other relief if caught up in an ICE sweep at a construction site or factory.
Overall, immigrants comprise more than 26 percent of the construction workforce in the U.S., although that share can be even higher depending on the trade. Those in drywalling, ceiling installation, plastering, stucco masonry, roofing, painting, paper hanging, and carpet, floor, and tile installations account for more than 50 percent of workers in construction trades.
This shortage is nothing new. In a landmark 2025 study by the Home Builders Institute, the National Association of Home Builders, and the University of Denver, the study found that the skilled labor shortage in the single-family home building sector is costing the U.S. economy around $19 billion a year.
The AI boom in private data center construction has also siphoned off a swath of the existing labor pool. Through July of this year, $37 billion was spent on AI data center construction compared to $46 billion for construction of everything else, from houses, apartments, shopping centers, etc.
Add the 6.7 percent increase in building material costs, driven by tariffs and conflict-driven inflation, and you have a pretty good idea why your children can't afford to buy a home in America today.
Readers may recall that Donald Trump's immigration policies were intended to remove "Tens of Millions of Illegal Alien Criminals who poured into our country, including Hundreds of Thousands of Convicted Murderers, Rapists, Kidnappers, Drug Dealers, and Terrorists," according to a January 25th social media post by the president.
It is notoriously difficult to determine exactly how many arrests and deportations of criminal illegal immigrants have been accomplished. That alone should tell you something about the government's success rate of capturing criminal illegals. If you have a documented number, I would be grateful to know it.
As of the end of the government's 2025 fiscal year, the Cato Institute found that 73 percent of arrested illegals had no criminal record. Other news sources say less than one-third have any criminal conviction. I guess one can argue, as this administration must surely be doing, that because someone crossed into this country illegally, they are a criminal by definition.
I'm equally sure that few who may have agreed with the president's social media post (quoted above) would consider their nanny, hospital attendant, roofer, house painter, fruit picker or grass cutter fit Trump's definition of a criminal. It appears that those red-blooded Americans who build houses for a living (many of whom reside in Red States) are becoming increasingly dissatisfied with the present immigration policies of the United States. How about you?
Bill Schmick is a founding partner of Onota Partners, Inc., in the Berkshires. Bill's forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners, Inc. None of his commentary is or should be considered investment advice. Direct your inquiries to his website at www.schmicksretiredinvestor.com. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
PITTSFIELD, Mass. — Bond market volatility has thrown investors for a loop as yields across the board have risen to multi-year highs.
Oil prices are also gaining, forcing global central banks into a higher-for-longer interest rate posture. Equity investors simply yawn.
Thirty-year Treasuries hit 5.44 percent — a 20-year high. The 10-year registered 5.23 percent while shorter-term maturities all registered multi-year highs. Meanwhile, as diesel fuel broke $6.50 a gallon, Brent crude was above $106 a barrel, while U.S. WTI oil was trading above $94 a barrel.
And yet despite the backup in yields, the stock market finished the week with gains. On Monday, the Nasdaq hit a record high and finished the week up more than 1.5 percent. There was "talk" on Tuesday that Americans and Iranians would reach an agreement while meeting at the U.N. General Assembly's 81st session. Oil and gold prices fell; bond yields did as well.
And then came Wednesday. Let's start with the release of last month's Purchasing Managers Index (PMI) — both the Manufacturing and Services PMI were much better than expected, revealing rising demand and costs. The results signaled a stronger economy ahead but with rising costs.
This was followed in the early afternoon by a failed $70 billion, five-year Treasury auction. Buyers went on strike. To attract interest, the rate promised on the bonds had to be raised. Yields on existing bonds exploded higher and ended the day at 5 percent. It was the worst auction since 2018. This was followed by another ugly auction of the seven-year on Thursday, which pushed yields even higher.
Is it any wonder that during a talk at a housing conference, Federal Reserve Gov. Michael Barr was quoted as saying "more tightening will likely be needed." Several other Fed heads echoed those sentiments during the rest of the week. By Friday, the 10-year benchmark government bond was 5.21 percent, with most bond vigilantes eyeing 5.30 percent in the days ahead.
As for that peace deal, hope springs eternal over in the stock market. I am still dumbfounded that markets believe these White House peace-around-the-corner claims that bubble up every time the markets threaten to fall. The pullback in energy prices reversed by Wednesday.
The Iranians claim they want to return to the Memorandum of Understanding terms to negotiate some truce. That seems to be the extent of the three-hour meeting between Trump's son-in-law and the Iranian president. With the midterms around the corner, the administration appears desperate to at least hold the line on oil prices for the next few weeks. And oil is the key to the stock market.
The administration is working as hard as they can to keep stocks from falling before the election. They hope that people will vote with their pocketbook. In this case, with strong returns in their retirement accounts, more people will vote for the status quo than not.
In the case of a truce in the Middle East, it is up to whether Iran's real leaders, the cadre of hardline Revolutionary Guard bosses, are willing to play ball. Those bad guys were probably disappointed this week when the GOP-controlled Senate continued to rubber-stamp the president's war.
The Republicans narrowly defeated legislation which would have demanded an end to the war. Meanwhile, diesel prices continue to climb, hitting $6.52 a gallon. Diesel is actually above $8 in California. Nationwide, diesel powers almost everything that moves or is made.
By the time the smoke cleared on Friday, prediction markets priced in the probability of another rate hike in October and December at more than 60 percent. That puts the Fed between a rock and a hard place. If they raise rates, it will increase interest rates on the short end of the curve.
That is where the U.S. Treasury auctions offer most of our government fixed-income instruments to finance our increasing debt load. A rise in rates will cost us more in interest payments, which is the amount the nation pays to borrow money. If they don't raise rates, then inflation continues to accelerate.
The tremors from the climb in U.S. bond yields have reverberated around the globe, pushing bonds higher this week in Japan, Australia, and New Zealand. Europe has followed suit, with German, French, Italian, and Greek fixed income yields moving higher and higher.
So, with yields breaking bad, why is the equity side of the equation holding up so well? The S&P 500 Index is less than 1.5 percent away from all-time highs. But looks can be deceiving. Remember that the large mega-cap stocks, the AI hyperscalers, represent almost 40 percent of most equity indexes. Higher bond yields would least impact these companies because of their strong cash flow and prospects.
Under the hood, almost 70 percent of the S&P 500 constituents are already at least 10 percent below their 52-week highs and in correction territory. That amounts to the most extreme breadth divergence in 10 years. Rising yields hurt small businesses the most. The small cap Russell 2000 Index is where the carnage is occurring. That index is down more than 5 percent over the last month. The bulls argue that there is no cause for alarm.
The PMI data shows a growing economy thanks to the multi-trillion-dollar expansion in investment capital fueled by AI. As such, rising interest rates are a natural function of a growing economy. All this investment is driving corporate earnings across the economy.
What does it matter if the borrowing rate moves up a percent or so when the payoff from AI investment in the years to come will be multiples of that cost? As long as AI continues to grow, the stock market will grow with it. So say the bulls.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The airways are chock-full of stories bemoaning soaring gasoline and diesel prices lately. Much less attention is focused on rising heating oil prices this coming winter.
All the inflation data is reflecting how these rising energy costs are impacting your pocketbook. For diesel, which fuels the transportation industry and most of commercial America, the problem is even more acute than gas.
Some readers, depending on where you live, may also be facing another challenge besides higher gas prices. A close cousin to diesel fuel in the world of refined energy products is home heating oil. Around my town, regular gas is above $4.35, and diesel is now over $6.50 a gallon.
Diesel is now at an all-time high. Heating oil is following the diesel price higher. Fortunately, if there is a silver lining, many homes in the country run on gas or electric. The problem turns ugly in the Northeast, however. Over 4 million homeowners depend on heating oil, the most expensive way to heat a home and stay warm in the winter.
U.S. heating oil futures recently surpassed 2022 highs and have climbed almost 30 percent over the last quarter. Since the start of the year, they are up 120 percent. The Energy Information Administration forecasts the average price this year at $4.80 a gallon, up 33 percent from last year. The catch is that prices vary widely depending on where you live.
In some states, heating oil use is greater than in others, such as Maine (50 percent of homes), Alaska (28 percent), Massachusetts (20 percent), and New York (15.53 percent), so the impact will be greater. I recommend calling your local oil company for a quote once you read this column. Don't be surprised if the price is at least $2 or more per gallon above the government-forecasted average.
Before you ask, yes, you can blame the war in Iran. Part of the price increase is due to the closure of the Straits of Hormuz and other exit routes for crude oil and refined products out of the Middle East.
But some of the shortfall is also happening because the war that was supposed to be resolved on "Day One" of Trump's re-election is still very much in contention. Ukraine is now able to hit Russian oil refineries thousands of miles away in retaliation for the devastation of its own energy resources over the last five years.
This matters because Russia is a major exporter of all kinds of petroleum products, including diesel and heating oil. As a result of the Ukrainian drone attacks, Russian production has fallen to the point that they have banned exports. This has created a supply shortfall for global customers, leading to much higher prices for diesel and heating oil outside the U.S.
Oil refiners in general, and U.S. refiners in particular, have been exporting some of their diesel and heating oil overseas to take advantage of price discrepancies between domestic and overseas markets. As a result, some refiners are experiencing even wider profit margins. There has been talk among legislators this week in Washington about restricting diesel exports from the U.S.
The Biden-era attempt to reduce LNG exports was a dismal failure. All it did was increase LNG prices worldwide. The same would happen if the government reduced diesel exports. Trump has not decided whether to restrict diesel exports, despite a massive lobbying effort this week by the energy trade.
The situation has escalated to a point where President Trump has asked Ukraine's President Volodymyr Zelensky to cease fire on Russian refineries. You may remember Zelensky; he is the same man the U.S. president and vice president publicly humiliated in the Oval Office a year ago for not being grateful enough for U.S. assistance during Russia's war of aggression.
Trump this week claimed in a post on Truth Social that "Ukraine has agreed not to hit Russian energy targets. Russia has agreed to do likewise." Neither side has agreed yet, even after Zelensky met with the president at the United Nations assembly this week.
Zelensky reiterated his position that he would be willing to back off if Russia agreed to de-escalation as well, with assurances from his "partners." Does that mean Trump is his partner again?
In any event, aside from praying for a mild winter, I suggest readers take advantage of your oil supplier's standard pricing program, if you haven't already. It is a way to hedge your upcoming fuel costs if administration-induced price spikes continue throughout the winter.
If you're unfamiliar with hedging your oil costs, current program types include fixed-price plans, where you can lock in your per-gallon rate for the entire heating season (typically October through April). You pay the agreed price regardless of market changes. Premiums over spot prices are usually $0.10-$0.25/ gallon.
Price cap plans also set a maximum per-gallon price for the season. You pay the lower of the market rate or the cap. In this plan, the premium over spot you pay is typically $0.25 to $0.50 per gallon. Or you can take the risk that the war is over in the next month or so and opt for variable pricing, which is the spot market rate, without a cap or lock.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
Yes, you read that right. For the first time in a long while, stocks celebrated what has historically been a reason to sell stocks the day after a rate hike. There are reasons why, and inflation is at the top of the list.
Historically, the S&P 500 Index has risen on only 35 percent of days when the Fed raises rates. The vote to raise rates was unanimous, with all 12 FOMC members voting to tighten. Fed Chair Kevin Warsh made it clear in his post-announcement remarks that he is not happy with the pace of the inflation fight.
The nation has been saddled with rising inflation for five years, and indications suggest the FOMC doesn't see inflation reaching its 2 percent target for another two years. Although he didn't say it, the market now believes this isn't a "one and done" hike. Most believe yesterday marked the start of a new interest rate hiking cycle.
The betting is that there will be at least two more hikes, if not more, in the months ahead. I looked back to find out how stocks behaved during similar cycles over the past 30 years. In the first several months, equities typically struggle for a few months before regaining their footing about 4 months later.
Two exceptions to this rule stand out. In 1997, the index gained 8 percent in the first two months as the dot-com boom began its climb. I see similar behavior today, thanks to the AI-driven environment. In March 2022, the opposite occurred, with the initial hike precipitating a negative period of more than 12 months and a 25 percent decline.
If I pull back and look at performance over the last century, the S&P 500 Index has risen during nearly every Fed rate-hike cycle, in eight of the last nine major tightening periods between 1971 and 2022.
If you have been reading my recent columns on the bond market, you know two issues were on the table going into this meeting. Would Trump-appointed Kevin Warsh bow to his boss and refuse to raise interest rates, casting the Fed's independence into doubt? And would a Fed interest rate hike further exacerbate climbing bond yields on the long end of the curve?
We now know the answer — no. It appears the president reconciled himself to his appointee's action because of a "very tough board," even though he insists U.S. interest rates should be 1 percent or less, according to his social media posts. That goes a long way to putting to bed the independence narrative.
As for yields, the benchmark 10-year Treasury bond yield fell from 5.01 to 4. 95 a day later. Whether that was due to a decline in oil prices or a little more confidence that the Fed was "doing something" about inflation remains to be seen. One day does not make a trend, but at least bond yields didn't go up (although by Friday the 10- year was back to 5 percent).
If there was ever a time to raise rates without risking negative repercussions to the jobs market and the economy, it is now. Both areas have proved strikingly resilient this year in Warsh's estimation. "Geopolitical developments," which is Warsh speak for the Iran War, have fueled a re-acceleration in inflation. This is driven by higher energy prices filtering through a broad range of consumer goods and services across the economy.
Given that inflation data will continue to accelerate through the next two months, I can see the narrative build among market participants that even more interest rate hikes will be necessary to quell inflation. That would be a mistake. It could result in the Fed tightening rates at a time when the economy begins to slow, thanks to a re-rating of the AI trade and the end of the administration's efforts to grow the economy before the midterm elections.
This week, the Fed's hike saved the stock market. Friday was a triple witching day when $7 trillion of options expire. I would discount any moves up or down in the market as a result since it is purely a bookkeeping event in the financial markets. Markets are balanced on a knife edge and next week could go either way depending on the path of oil prices, bond yields, and the Trump/XI summit.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
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