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Mill Street Research @millstreetresearch.com · 18h

Stocks weakened into the close after headlines indicating concerns about Google's latest AI model, pushing the stock lower. Also, Trump said Jay Powell should be forced to resign from the Fed board, something about the Fed building renovations.

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Mill Street Research @millstreetresearch.com · 29/09/2026

Headlines coming through about 30-year yields hitting highest since 2002, now at 5.6%. But that's not unusual based on current fed funds (3.75-4.0%) and the market's view of a peak around 4.8% next year. Since 2002, the 30yr has averaged ~1.9% above fed funds, though with wide variation.

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Mill Street Research @millstreetresearch.com · 29/09/2026

Checking on corporate borrowing costs, long-term Baa-rated corporate bonds now yield 6.75% according to Bloomberg's index. That's up 80bps just since June 29 and close to the peak of 6.93% in October 2023. Core PCE inflation ~3.3% (next update tomorrow) means real borrowing rate is ~3.5%.

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Mill Street Research @millstreetresearch.com · 28/09/2026

Can see the divergence very clearly when looking at margins: operating cash flow (OCF) margin is historically high, but free cash flow (FCF) margin is not. Mid-caps look different: OCF margins have risen but are not at all-time highs (and structurally lower), and same for FCF margins.

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Mill Street Research @millstreetresearch.com · 28/09/2026

The ongoing capex surge in the S&P 500 (mostly Tech) continues to produce a big gap between projected (next-12-month, NTM) operating cash flow and free cash flow. So valuations are somewhat expensive vs history but not bad using operating cash flow, but still very expensive using free cash flow.

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Mill Street Research @millstreetresearch.com · 25/09/2026

Nominal yields have been rising, but mostly due to higher real growth than higher inflation expectations. Which seems odd given the inflation pressures and fuel prices, but is consistent with economic data coming in above expectations almost everywhere except China (Citi Surprise indices).

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Mill Street Research @millstreetresearch.com · 25/09/2026

Interesting to see US TIPS yields nearing 3% (based on the ICE US TIPS index) while inflation expectations are hovering near 2.5% for the CPI for the next 1-2 years. The trend is global too, as inflation-linked bond yields in Europe (while lower) have also risen to 15-year highs lately.

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Mill Street Research @millstreetresearch.com · 24/09/2026

Of course, the average outstanding rate for all mortgages remains much lower, though rising slowly because turnover in mortgages has been low and getting even lower based on the MBA Mortgage Activity index. Still a key reason non-AI fixed investment remains weak.

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Mill Street Research @millstreetresearch.com · 24/09/2026

In "yikes" news for those trying to get a mortgage for a home, the 30-year mortgage rate has now risen 125 bps from Feb. 27th to Sept. 23rd. The rate is now the highest since May 2024 at 7.39%, based on the ICE index capturing a balance-weighted average of 30-year mortgage loan lock rates.

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Mill Street Research @millstreetresearch.com · 23/09/2026

These are some big yield moves in Treasuries today, +14-16bps across the curve. Means the long-bond ETF, TLT, is down -1.5%, a new low. That's a 2.4 SD move. Odds of an October rate hike now 73%, and about even odds we get 2 rate hikes by year-end. Stocks under pressure but not drastically.

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Mill Street Research @millstreetresearch.com · 21/09/2026

The Semiconductor Index (SOX) had fallen about 24% from the June 22 peak to Sep. 14. Since then it has rallied back 10%, moving back above the 50-day average. The narrower, Tech/AI leadership is back while the broader market has been lagging. This is true even today when oil+rates are lower.

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Mill Street Research @millstreetresearch.com · 16/09/2026

While we sit around and wait for the Fed, worth remembering that whatever China is doing with AI, or autos, or renewables, etc., it is not growing corporate profits much and its stock market continues to lag the rest of the world. Since Oct. 1st, MSCI China down -20%, vs +14% for MSCI ACWI index.

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Mill Street Research @millstreetresearch.com · 15/09/2026

More shocks to the supply of diesel fuel being reported from Russia and the Middle East have pushed prices to the highest level since the 2022 spike after the initial invasion of Ukraine. Oil and gasoline prices also higher though not quite as extreme so far. Stocks feeling pressure this morning.

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Mill Street Research @millstreetresearch.com · 02/09/2026

US refineries are now running at capacity utilization of 98%, matching the highest readings in the last 20+ years. And never sustained for more than a few weeks. The long-run average (ex COVID) is about 89%. We *really* have to hope nothing breaks . . .

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Mill Street Research @millstreetresearch.com · 02/09/2026

The Goldman Sachs High Beta Momentum basket has been doing badly lately, and down again today. Like other metrics of risk appetite, this peaked in June and has struggled since, even though the broader market has made new highs through mid-August.

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Mill Street Research @millstreetresearch.com · 01/09/2026

Interesting bits of macro data on AI economics: The price of tech hardware is surging, both for consumers and LLM providers -- PCE for info processing equipment rising at double-digit rates Pricing for LLM usage is plunging despite increased usage, now about half the price seen in May

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Mill Street Research @millstreetresearch.com · 01/09/2026

High beta stocks (SPHB) and small-caps (IWM) are struggling lately. Both now below their 50-day averages. High beta peaked in mid-June even while the S&P 500 made new highs in mid-August. But low-volatility (SPLV) is not doing great either, down -4% from its late July peak.

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Mill Street Research @millstreetresearch.com · 01/09/2026

Just to follow up on these comments from @jwmason.bsky.social and Matt Klein, US Treasury yields are not in fact very high relative to the current 7% nominal GDP growth rate. At various points in the last 35 years, 10-year yields have been close to or higher than nominal GDP growth.

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Mill Street Research @millstreetresearch.com · 31/08/2026

Some good points in this post from @bencarlson007.bsky.social about the worries over US government debt. I broadly agree, and can post my favorite chart on that: US Treasury debt relative to US household net worth. The ratio rose after the GFC but has been stable since at a moderate level of ~21%.

Time series chart showing the ratio of US Treasury debt to US household net worth since 1996. It fell in the early 2000s from 17% to 13%, jumped in the aftermath of the Great Financial Crisis to around 22%, and then eased and has been stable since 2014 around 21%.

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Mill Street Research @millstreetresearch.com · 25/08/2026

Pretty stark divergence going on in analyst earnings estimate activity in the Energy sector. The Equipment & Services industry is seeing analysts move to more estimate cutting: now more cuts than raises to next-12-month EPS estimates. The Oil & Gas industry is seeing renewed estimate increases.

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Mill Street Research @millstreetresearch.com · 24/08/2026

This is a good and perhaps slightly overlooked point: the US federal deficit of about 6% of GDP is *extremely* high (stimulative) in an environment of 4% unemployment and almost no population growth. This did start in Trump's first term but is arguably more extreme now.

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Mill Street Research @millstreetresearch.com · 20/08/2026

Treasury investors were not comforted by Bessent's press comments today, and the 10-year yield is still around 4.70%, while oil is still up. Inflation expectations are not actually the problem, swap prices show near-term CPI expected to fall. It's policy uncertainty risk.

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Mill Street Research @millstreetresearch.com · 20/08/2026

The S&P 500, NASDAQ-100 and Russell 2000 are all down more than -0.5% today, with R2K at -1.3%. VIX is up today but only to 15.8, and our VIX-based allocation indicator says the VIX is "too low" relative to realized volatility (should be closer to 18), and thus a bearish signal right now.

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Mill Street Research @millstreetresearch.com · 20/08/2026

Trying to play games with buybacks to manipulate the long end of the bond market doesn't work well when oil prices are going back up again. Front month WTI now back above $88/bbl, and the average of the next 12 monthly futures is above its July peak, now at $80.

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Mill Street Research @millstreetresearch.com · 20/08/2026

Yikes. The 30-year yield has already reversed the decline caused by Bessent's buyback announcement yesterday. And the 10-year yield is now 2-3bps higher than it was before the news. Very bad look: seems like a panic move, and effect hardly lasted 24 hours. Stock futures trading lower too.

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Mill Street Research @millstreetresearch.com · 19/08/2026

Starting to look like the 10-year Treasury yield is reversing most of the decline that occurred around 8:30ET when the buyback news hit. Was 4.68% before the news, 4.67% now. Market seems to realize Bessent is just rearranging deck chairs, and oil still up. Stocks fading a bit.

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Mill Street Research @millstreetresearch.com · 19/08/2026

Bessent clearly getting nervous about bond yields, so has just announced an unexpected increase in longer-term Treasury buybacks, which has pushed down bond yields this morning. Stock futures have jumped on the news, given that rates have been a concern lately.

Bloomberg headlines from this morning saying the US Treasury is increasing long-dated bond buybacks, and long-term yields are falling as a result.

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Mill Street Research @millstreetresearch.com · 17/08/2026

With all the good news on earnings, new highs in the equity indices, and little action expected from the Fed, a lot of people are bullish now. Investors Intelligence bull-bear spread back up to near peak levels. Not a reason to sell, but to ask how much better things can get for equities.

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Mill Street Research @millstreetresearch.com · 14/08/2026

Interesting that bond yields are now notably higher on the day despite the weak retail sales report. The 10-year is now up 4bps from yesterday to 4.69%, and 2-year back to flat at 4.15%. Curve still steepening, now at 54bps, matching recent peaks in April/May.

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Mill Street Research @millstreetresearch.com · 14/08/2026

Seeing articles like this (FT) about price competition in LLMs, and noting the trend in the Silicon Data LLM Token Expenditure Index, seems to say that average prices for LLM usage are falling rapidly on average. This is not my area of expertise but reinforces questions about LLM economics.

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Mill Street Research @millstreetresearch.com · 12/08/2026

As @hmeisler.bsky.social notes, VLO has run off the chart to a new high, and the CRAK ETF of refiners (VLO is 2nd largest weight) has likewise jumped to a new all-time high today. Driver is crack spreads have jumped: the 12-month futures strip now near $50/bbl, much higher than the 2022 peak.

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Mill Street Research @millstreetresearch.com · 12/08/2026

Interesting to watch the divergence between consensus projected forward 12-month profit margins for the S&P 500 vs the 400 (midcap) and 600 (smallcap) indices. Margins are rising in all 3, but small-cap margins are still below earlier peaks and not much above average for the last 10 years.

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Mill Street Research @millstreetresearch.com · 12/08/2026

While core inflation pressures seem to be easing, one key reason is that real wage growth has slowed to basically nothing. Average weekly earnings adjusted for inflation are up just 0.1% from a year ago, and have been hovering around zero since March.

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Mill Street Research @millstreetresearch.com · 10/08/2026

If you've been thinking stock action in the Tech sector is tougher than usual . . . well, yeah. First, the average US Tech stock in the Russell 1000 has a 3-month annualized volatility of about 70%. That compares to typical readings of 40-45% and has only been exceeded in recent years in early 2020

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Mill Street Research @millstreetresearch.com · 07/08/2026

The BofA Bull/Bear indicator has a mixed record like most sentiment indicators, but notable that it is at an extreme now. I do not see it as a reason to sell, but confirms that expectations are high, both by investors and equity analysts (in earnings estimates).

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Mill Street Research @millstreetresearch.com · 07/08/2026

Chart shows the Fed's labor market conditions index, which aggregates 24 labor market indicators and compares to long-run averages, scaled so 0 = long-run average. Having been above average for several years, it is now back near zero, hence the lack of action by the Fed lately.

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Mill Street Research @millstreetresearch.com · 04/08/2026

Note that this has not prevented US stocks from outperforming ex-US stocks since the beginning of March, since reported earnings in the US have kept up with ex-US earnings, even if free cash flow has not. Higher risk appetite in the US, less energy exposure, etc. have also helped.

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Mill Street Research @millstreetresearch.com · 04/08/2026

The capex boom is mostly a US story, as projected capex relative to sales for Europe and Asia Pacific do not look anything like the North America (mostly US) capex/sales data. Which helps explain why projected free cash flow has grown slower in the S&P 500 than for ACWI Ex-US since early 2025.

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Mill Street Research @millstreetresearch.com · 03/08/2026

The CBOE Implied Correlation index has a long-run average of about 30, so the current reading of 5.5 is extremely low. The CBOE Constituent Volatility Index has a long-term average of about 31, so the current 45 is very high. The VIX is somewhat below average at 15.8, so dispersion remains high.

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Mill Street Research @millstreetresearch.com · 30/07/2026

I don't have today's data updated yet, but this is what the Tech vs non-Tech investment trends looked like as of last quarter. And "Information Processing Equipment" here does not include AI data center building, just the hardware. Tech's influence in investment has surged.

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Mill Street Research @millstreetresearch.com · 30/07/2026

June personal income and spending showed 0.3% increase in spending and 0.2% increase in income. Real spending up 0.4% because headline PCE was -0.1% for June due to lower energy prices. Spending still outpacing income, pushing saving rate down further to just 2.7%.

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Mill Street Research @millstreetresearch.com · 29/07/2026

Looks like correlations within stocks are ticking up today, with the CBOE's Implied Correlation index (COR1M Index on Bloomberg) trading above 10 for the first time this month. Dispersion index thus starting to pull back from recent historic extremes. VIX up to 20 now, VIXEQ at 48.

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Mill Street Research @millstreetresearch.com · 28/07/2026

At the macro level, this is a lot of why earnings are so strong late in a cycle, and why core inflation is still above target: Fiscal policy is still unusually loose based on the deficit/GDP ratio, and it is quite rare for it to be this loose while the unemployment rate is this low.

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Mill Street Research @millstreetresearch.com · 28/07/2026

Quick screen for biggest 1-day returns in XLP since 2005 is below (by date). Last one this size (3.9%) was April 2025, rebound from tariff shock decline. Before that were several in March/April 2020 in COVID rebounds, including 8.5% on March 13 2020 and 8.4% on March 17.

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Mill Street Research @millstreetresearch.com · 28/07/2026

Short covering has been a significant factor this year, and particularly in recent weeks. The Bloomberg US Short Interest long/short factor (based on days to cover) has had an unusually large jump, indicating heavily shorted stocks outperforming. Pattern looking like 2020-21.

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Mill Street Research @millstreetresearch.com · 23/07/2026

These are the latest S&P 500 index aggregate consensus next-12-month (NTM) estimates for free cash flow relative to net income, and capex relative to operating cash flow. FCF/Net Income is one measure of "earnings quality", which is near its lowest level in many years.

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Mill Street Research @millstreetresearch.com · 21/07/2026

The average EM stock has badly lagged the cap-weighted index. The MSCI Equal-weighted Emerging Markets index (total return in USD) is up just 5% YTD, versus the 16.6% return for the standard cap-weighted index. The mega-caps in Korea and Taiwan are doing most of the driving in the EM index.

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Mill Street Research @millstreetresearch.com · 21/07/2026

While it's true that the MSCI Emerging Markets index (EEM) has outperformed the MSCI World (developed markets, URTH) index this year, it has done so with much higher volatility. Rolling 3-month EM volatility has surged to 26% (vs 15% 3-yr average) while DM is at 11% (avg. 12%).

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Mill Street Research @millstreetresearch.com · 21/07/2026

So far, the Tech/AI capex trade has mostly ignored rates since everyone is playing for far higher expected returns. But bank credit growth is starting to slow after steadily accelerating over the last two years, as the Fed considers rate hikes. Rates may be having more of an effect now.

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