This website has always been more about the forest than the trees. It is more concerned with asset classes than markets, more concerned with markets than sectors, more concerned with sectors than single investments. The focus is not on individual equity or bond choices but on exchange traded funds. Call it a top-down approach. It is meant to maximize the benefits inherent in diversification and to avoid ugly surprises.
It was a busy July 4th weekend here in Washington DC, complete with 100 degree-plus heat, a few violent thunderstorms, an occasional power outage, some very squirrely internet behavior, back-to-back world cup distractions, and a lot of family obligations. Hence the Moose is late this week. My apologies.
(I should probably have ended this endeavor when my internet provider abrogated our agreement. Problem is, I am too old to start over, but I hated to drop my efforts in the midst of what has been (for me at least) an historic level of success. There is still value in knowledge even if I’m unable to monetize it.)
This week the Forest tells us that equities continue to be the most attractive asset class out there. Among equities, offshore markets have led their US counterparts for most of 2026 thus far due in large part to US tariffs. Among offshore markets emerging regions have outperformed developed recently. That, however, is changing.
In June central bank rate hikes in Europe and Japan put additional pressure on developed regions. That in turn weakened the outlook for their customers and raw materials providers in emerging regions. Despite tariffs, US stocks began to look relatively more attractive as the Fed continued to hold rates steady.
US large-cap growth and momentum (the AI/Tech trade) has been a domestic leader for years, getting more and more expensive. US small-caps languished during the previous administration’s “war on small business” but their prospects have improved since the business tax cut extensions. That and over-valued large-caps are making for a small cap revival at present. Not only are they outperforming US large-caps, they’re outperforming international stocks in the latest quarter.
This week we saw a June drop in the unemployment rate. Unfortunately, the drop in the jobless level to 4.2%, the lowest in a year, came largely from an exodus of workers from the labor force. The working-age population either employed or looking for a job slid to 61.5%, the lowest since March 2021.
Excluding the Covid-era jobs market, it was the lowest labor force participation rate in exactly 50 years.
The cause may be retirements, undocumented or exiting immigrant laborers, or it may be about prior job seekers simply dropping out of the labor force. (Given the Bureau of Labor Statistics’ checkered history, it may even be bad data.) Whatever-- it was enough of a one-time shock to get investors’ attention. They decided it meant the Fed will not raise interest rates anytime soon.
Coupled with rate hikes elsewhere, slowing job growth relieves pressure on the US Fed. The odds are 78% that rates will remain unchanged at the next meeting in July. By December, however, a Fed rate HIKE (77%) is still the most likely outcome. That said, our Fed Check has improved from 77 (extremely hawkish) in May to 91 (slightly hawkish) this week.
The Fed Check measures the global inflation threat, and it says that conditions, including rate hikes abroad, falling oil and commodity prices, and a stronger Dollar have taken considerable pressure off the Fed to hike rates in the US. If it continues that should continue to benefit equities and slow the decline in gold.
Big Picture then: The models are rotating out of International and emerging market equities and into US small caps. US large caps are still relatively expensive, but the US equity market has very broad participation. An astounding 82% of US sectors are “buy or hold“ (beating the return on cash). More than half (52%) are outperforming the S&P benchmark. There is however, considerable rotational volatility so enjoy, but do pay attention.
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