All year long I’ve been listening to pundits on financial networks incessantly predict imminent recession. Per usual, investors who listened and retreated to the sidelines learned once again that doing so put them at financial peril as the markets delivered yet another quarter of solid returns.

The broad U.S. stock market picked up gains of six and two-thirds percentage points in the second quarter and is now up well over sixteen percent in the first six months of the year. 

Over on the less-risky bond side of portfolios, the past year’s trend in dramatically rising rates seems to have moderated. Both the 30- and 10-year yields barely moved from where they were three months ago. At the shorter end, though, the yield curve has grown even more inverted; with the five-year well above four percent, the two-year just under five percent, and both the one-year and six-month pushing five and one-half percent.  

To understate the obvious, this is not a normal or healthy yield curve. Whenever shorter-term rates are paying bond investors more than their longer-term counterparts, it means many investors are feeling cautious about the future of the market. With statistical indicators being all over the place, our economic future has seldom been as cloudy as it is today. By one measure, the manufacturing sector has been in a recession for the past seven months. New export orders for goods have been falling globally at the fastest pace since the end of 2022. Adding to a list of downbeat news, U.S. corporations have reported lower profits for the past two quarters.  

That, however, is only half the story. The unemployment rate in the U.S. remains under 4% and the labor participation rate among workers aged 25 to 54 stands at a very strong 83.4% – the highest level since 2007. Consumer spending has remained brisk, with durable goods orders up 1.7% last month over the previous month. U.S. households are still flush with cash that was saved during the pandemic; and the Federal Reserve Bank of San Francisco has estimated that households still have sufficient savings to support current spending levels at least through the fourth quarter of this year. Not incidentally, the inflation rate keeps falling. Last year, alarm bells were sounding because June’s annualized rate hit 9.1%. Today’s rate is an annualized 4.0%.

There’s no reason to imagine that any of us can predict the future with any accuracy, except to point out that markets have, historically, trended upward and rewarded patient investors. It’s possible that a future recession will test our collective patience once again. But this is a test that will be easier to pass due to the gains that this year has provided us already – and we’ll be fortified by laddered bond portfolios which have locked in much of today’s attractive short-term yields-to-maturity for up to five years.

This week’s fireworks could celebrate not just our nation’s founding, but t

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