This Week’s Market Reflection: Inspired by The Grateful Dead

This week’s musical inspiration comes from the Grateful Dead’s 1987 hit Touch of Grey. Despite a recent stream of economic data suggesting a decelerating economy, easing inflation, and subtle signs of softening in the labor market, last Thursday’s employment report delivered a sobering reality check. The data revealed continued labor market strength, with the unemployment rate unexpectedly improving—effectively dashing expectations for a near-term rate cut by the Federal Reserve. What had previously been priced as a near-certainty for a July rate cut quickly collapsed to below a 10% probability.

The market reaction was swift and pronounced. The 10-year U.S. Treasury yield, which had dipped as low as 4.20% on July 1, surged to 4.435% by yesterday—its highest level in nearly a month. Mortgage rates followed suit, climbing back above the 6.75% threshold.

The silver lining, however, is that markets appear to have found a near-term ceiling at these levels. Investor attention is now shifting toward upcoming catalysts: the implementation of new tariffs scheduled for early August, next week’s inflation readings, and another critical employment report on August 3.

Despite recent volatility, I remain confident in the broader trajectory toward lower interest rates—a potential silver lining for the sluggish housing market. But as the Grateful Dead aptly remind us, “Every silver lining has a touch of grey.” We may indeed be headed for brighter conditions, but we should expect some turbulence along the way.