The market got exactly what it needed last week: confirmation that the economy is slowing—not collapsing—and that the Federal Reserve has the green light to start cutting rates. Payroll gains softened, manufacturing remains weak, and broader job slack is showing up with U-6 underemployment rising to 8.1%.
Healthcare hiring, which accounted for roughly 40% of job creation over the past year, cooled to just 22,000 jobs in the latest report. That’s not recessionary, but it is definitive deceleration, and it makes a September rate cut a near certainty. I expect the Fed to cut 25 basis points in September and follow with 25 at each of the next two meetings, for a total of three cuts this year. Even an upside surprise in next week’s PPI or CPI—running near a 3% year-over-year pace—should not derail that path, because the policy debate has shifted decisively toward labor-market weakness rather than transient price noise.
Bond markets were already voting. The 10-Year Treasury slid towards the cycle low near 4.00% back in sight—while the 30-Year, once feared to break above 5%, has retreated to the 4.7%–4.8% range. This is what a weakening growth impulse looks like: term premiums stabilize and duration rallies as investors price in easier policy ahead.
I advocate the Fed brings the policy rate below 3% over time; the economy simply doesn’t require restrictive real rates with money growth subdued and inflation trending in the low 2-3% band. As cuts progress, the yield curve should normalize from its inverted state, and that shift historically supports equity multiples—particularly for rate-sensitive segments.
Productivity data tells a nuanced story. Yes, Q2 productivity rebounded at a 3.3% pace after a negative first quarter but average them and you’re only at roughly 0.7% for the first half—well below the 2%+ trend we enjoyed last year and the about 2.1% average since 2014. That’s not the productivity surge the techno-optimists hoped for—yet. I continue to believe AI will help firms claw back margin pressure and offset tariff-related cost increases over the next several years, but diffusion takes time. Markets are already sniffing out the early winners in software and process automation, and I expect those gains to broaden.
On the global front, the much-discussed U.S.–Japan framework is best seen as portfolio re-allocation and loan guarantees tied to U.S. manufacturing rather than a fiscal gift. It’s constructive at the margin—supportive for U.S. capital formation without adding to Washington’s fiscal impulse—but not a game-changer on its own. Meanwhile, tariff dynamics—the “Trump bump” in levies now moving through the price pipeline—are manageable. Even if they keep headline inflation a touch sticky near term, the Fed should “look through” those effects given the labor signals and crosscurrents we’re seeing in services demand.
Investment implications are straightforward. A bond-led easing in financial conditions is bullish for equities although the slowing of the economy will keep a cap on any exuberance. The best showings should be in small caps and cyclicals that have lagged under real rates. Tech leadership remains intact, but breadth should improve; this is fertile ground for factor diversification rather than chasing the narrowest winners. My base case has the S&P 500 grinding higher into year-end, with 10-year yields testing below 4% if the next two labor prints remain soft. If productivity re-accelerates alongside easing, we’ll have the best of both worlds: disinflationary growth and multiple expansion. That remains the bull case—and it is very much alive for now… but we are closer to the top of this bull run than the April bottom.
Past performance is not indicative of future results. You cannot invest in an index. Professor Jeremy Siegel is a Senior Economist to WisdomTree, Inc. and WisdomTree Asset Management, Inc. This material contains the current research and opinions of Professor Siegel, which are subject to change, and should not be considered or interpreted as a recommendation to participate in any particular trading strategy, or deemed to be an offer or sale of any investment product and it should not be relied on as such. The user of this information assumes the entire risk of any use made of the information provided herein. Unless expressly stated otherwise the opinions, interpretations or findings expressed herein do not necessarily represent the views of WisdomTree or any of its affiliates.
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