Chart of the Week

Oct 10, 2026

Can the S&P 500 Handle Higher Treasury Yields?
This week’s chart examines the historical relationship between sharp interest rates surges and U.S. equity market performance. We look at the eight instances since 1989 where the 10-year U.S. Treasury yield climbed by 100 basis points or more over a 12-month period, measuring both total S&P 500 returns and maximum drawdowns during those exact rate spikes.

The Historical Baseline: On average across these eight episodes, the 10-year Treasury yield surged by 1.68%. Rather than triggering systemic stock collapses, the S&P 500 managed an average positive return of 3.8% during these rising rate windows, despite enduring an average maximum drawdown of 10.1% along the way.

Earnings Power vs. Valuation Drag: Conventional wisdom holds that rising yields inevitably harm equities by raising corporate borrowing costs and compressing valuation multiples. However, rate surges driven by robust economic expansion and strong earnings growth in 1996, 1999-2000, and 2016 allowed corporate profits to outpace rate headwinds.

The 2022 Outlier: The notable exception in the data occurred during the aggressive 2022 Fed tightening cycle (+2.52% yield spike in 7 months), where equities suffered a -24.5% drawdown and negative net returns. That severe selloff was catalyzed by high starting valuations paired with runaway inflation rather than pure economic strength.

The 2026 Chapter: In the most recent period from its 3.94% low on February 7 to a closing high of 5.31% on October 5, the 10-year Treasury yield rose by 1.35%, amid concerns about energy-driven inflation and debt issuance trends. Despite an 8% drawdown in March, the S&P 500 has advanced +11% over the timeframe. During this period, U.S. stocks have shown impressive resilience supported by corporate earnings growth and the ongoing AI capital investment wave.

Investor Takeaway: A rise in Treasury yields is not an automatic death knell for equity bull markets. When higher yields are accompanies by a largescale capital investment cycle and corporate profit strength, stocks can absorb higher borrowing costs. For disciplined allocators, we think short-term rate-driven pullbacks continue to offer strategic rebalancing opportunities into high-quality growth and market leaders.

Source: Bloomberg. Data as 9/30/26. Past performance does not guarantee future results.

Aug 25, 2026

Putting U.S. Federal Spending into Context
With expanding national debt, Treasury issuance needs, and persistent deficits dominating economic headlines, we think it would be helpful for investors to consider the big picture surrounding U.S. federal spending. This week’s chart tracks total U.S. federal outlays as a percentage of GDP from 1929 through 2025.

Historical Perspective: While the secular trend since World War II shows federal spending gradually expanding relative to the overall economy, current levels are not unprecedented. At 22.8% of GDP in 2025, spending sits near levels observed during the early 1980s (22.3% in 1982), remaining well below the crisis-era peaks of 2009 (24.3%) and 2020 (30.5%).

Bucket 1 – Mandatory Spending: Governed by permanent law, mandatory programs including Social Security and Medicare operate on “autopilot.” Outlays automatically expand based on demographic trends and enrollment eligibility unless Congress explicitly passes legislation to alter the underlying statutes.

Bucket 2 – Discretionary Spending: Unlike mandatory programs, discretionary spending requires annual appropriations enacted by Congress and the President. Defense spending accounts for nearly half of this discretionary bucket, which must be debated and approved every fiscal year.

Bucket 3 – Net Interest Costs: Driven by the accumulation of national debt and prevailing interest rates, net interest reflects the servicing cost minus government investment income. As yields remain elevated, rising net interest outlays threaten to crowd out public and private investment across other productive priorities.

Mind the Gap: The federal government funds these expenditures primarily through individual income and payroll taxes, followed by corporate taxes and excise duties. To cover persistent shortfalls between revenues and outlays, the Treasury has increasingly issued more short-term debt in the form of T-bills.

Investor Takeaway: Media commentary often frames current federal spending as an unprecedented anomaly. A healthier trajectory for the federal deficit certainly requires balancing outlays and revenues more effectively. While today’s spending relative to economic output is at the high end of the range seen over the last 40-50 years, it is not necessarily a reason for investors to make dramatic changes to their long-term portfolio allocations.

Source: Federal Reserve Bank of St. Louis. Data as of 12/31/25

Aug 3, 2026

Midterm Volatility: Fade the Noise
This week’s chart analyzes historical U.S. equity market performance surrounding midterm election cycles from 1900 through 2025. With all 435 House seats and 35 Senate seats on the ballot on November 3, policy uncertainty will inevitably generate headlines. Yet history offers a solid roadmap for long-term investors.

The Pre-Election Pause: Midterm election years have historically exhibited elevated volatility and muted gains leading up to Election Day. Between 1900 and 2025, the U.S. stock market averaged just a 2.9% return in the 12 months preceding a midterm election, compared to an 8.9% average across all non-midterm years as markets digested shifting regulatory expectations.

2026 Tracking Above Average: Despite typical pre-election jitters, the S&P 500 has gained roughly 8% since November 2025, continuing to trend well above the historical pre-midterm baseline as strong corporate earnings and macro fundamentals provide a floor.

The Post-Election Relief Rally: Once election results emerge and policy clarity is restored, markets historically experience a robust rebound. In the 12 months following a midterm election, the stock market has historically posted an impressive 12.4% average return, making pre-election pullbacks a poor signal for long-term capital to de-risk.

Fundamentals Over Politics: While campaign rhetoric dominates news cycles, macro drivers—such as Federal Reserve policy, inflation, and corporate earnings—exert a far greater influence on equity markets. Major drawdowns in past midterm years (such as 2002, 2018, and 2022) were driven by tech valuations, interest rate hikes, or inflation shocks, rather than congressional political reshuffling.

Investor Takeaway: Letting political preferences dictate portfolio allocation can be costly. Annualized S&P 500 returns under the Obama administration (+16.3%) and the first Trump administration (+16.0%) were virtually identical. Whether November yields a divided government or a unified sweep, markets adapt to any political configuration—reinforcing the importance of staying invested based on economic fundamentals rather than headline noise.

Source: U.S. Bank Asset Management Group, Bloomberg. Data as of 12/31/25. U.S. stock market represented by Dow Jones Industrial Average from 1900-1928, and the S&P 500 Index from 1929-2025. Past performance does not guarantee future results.

July 8, 2026

New Fed Chairs Tend to Be Tested
This week’s chart analyzes an interesting historical pattern as Kevin Warsh completes his first four weeks at the helm of the Federal Reserve: the market’s tendency to test a new central bank leader in short order. We looked back at the maximum drawdown for the S&P 500 during the first three months of every new Fed Chair’s tenure dating back to Marriner Eccles in 1934.

The Historical Baseline: On average, the S&P 500 experiences a 9% drawdown during the first 90 days of a leadership transition. This historical reality underscores that transitions at the world’s most powerful economic institution rarely occur in a market vacuum.

The 1987 Outlier: The obvious historical outlier occurred in 1987 under Alan Greenspan, when the index suffered a brutal 33% drawdown culminating in the Black Monday crash. Even outside of that extreme event, chairs like Paul Volcker (-10%), William McChesney Martin Jr. (-8%), and Marriner Eccles (-8%) faced significant early market pressure.

Powell’s Early Trial: Most recently, Jerome Powell faced a swift 7% drawdown upon taking office in early 2018. Markets frequently use these transition windows to gauge a new Chair’s policy resolve, communication style, and structural leanings.

The 2026 Macro Environment: For incoming Chair Kevin Warsh, the “honeymoon period” could be fleeting. He inherits a noisy backdrop defined by renewed inflation pressure, a divided policy-setting committee, and his predecessor Jerome Powell still serving on the Board of Governors!

Investor Takeaway: History shows that a change in leadership at the Federal Reserve is frequently accompanied by a short-term increase in equity market volatility. For disciplined advisors, pullbacks in the S&P 500 during these periods reinforce the importance of prudent portfolio construction and often prove to be buying opportunities. 

Source: Bloomberg. Data as of 6/30/26. Past performance does not guarantee future results.