Recession? Not So Fast.
- David Halseth
- 9 hours ago
- 2 min read
For the week ended 6/6/26.
A funny thing happened on the way to the recession. The U.S. labor market decided not to participate - last week’s employment report came in significantly stronger than expected, adding 172,000 jobs in May versus expectations for only 80,000. Even more impressive, revisions added another 93,000 jobs to March and April payrolls. Combined, the economy has now averaged a robust 188,000 new jobs per month over the past three months, the strongest pace in more than a year.
The unemployment rate held steady at 4.3%, and while the percentage of long-term unemployed ticked higher, the overall labor market continues to display a level of resilience that has repeatedly frustrated economists, forecasters, and anyone who enjoys predicting doom for a living.
This matters because the narrative has changed. Just a few months ago, Wall Street was busy debating how many rate cuts the Federal Reserve would deliver in 2026. Today, the discussion has shifted toward whether the Fed might eventually need to raise rates instead.
Why? Because inflation remains stubbornly elevated while hiring remains healthy. That's not exactly the combination central bankers dream about. And the bond market certainly noticed.
Treasury yields jumped following the jobs report, with the 2-year Treasury climbing to 4.16%, its highest closing yield in 16 months. Higher yields mean lower bond prices, and traditional fixed-income investors once again found themselves asking a familiar question: "Wait, bonds lost money again?"
Indeed they did. The bond market declined another 0.5% last week and remains in negative territory for 2026. Ironically, while private credit continues receiving its share of skeptical headlines, many private credit strategies are quietly producing yields in the 9%–10% range and remain positive year-to-date. Go figure.
Stocks weren't spared either. Domestic equities led the decline, falling 2.6%, while foreign stocks dropped 1.6% and commodities slipped 1.8%. Small-cap stocks took the hardest punch, with the Russell 2000 falling 3.5% as investors contemplated the prospect of higher borrowing costs for longer.
Looking ahead, all eyes turn to Wednesday's inflation report. Consensus expectations call for CPI to rise to 4.2% from April's 3.8%. Should inflation come in hotter than expected, investors may discover that the phrase "higher for longer" wasn't merely a slogan, it was a warning.
With that, may your coffee be strong, your duration short, and your portfolio better diversified than the average economist's forecast. Good morning.
Interesting data point of the week.
