In recent times, maintaining an optimistic view of the markets has proven to be an emotional challenge. However, many continue to sift through the barrage of unsettling news and hold firm in their conviction that it’s wise to remain steady. Whether this viewpoint is informed or not, it has proven to be a successful strategy thus far. This sentiment is reflected in various exchange-traded fund (ETF) pairs that track significant market sectors, as observed through yesterday’s close on June 11.
The ongoing conflict in Iran, coupled with surging inflation threats, has continued to push the market premium for the 10-year yield further from its fair-value estimate. As discussed last month, it appeared that a shift in market sentiment was beginning to emerge, a trend that is underscored today by the May updates.
The crisis in the Middle East shows no signs of abating, further highlighted by recent US military operations in Iran. History suggests that the impact on the U.S. economy will likely be minimal, as indicated by today’s update on second-quarter GDP forecasts.
The quest for higher yields has increasingly emphasized the riskier segments of the bond market since the onset of the conflict in Iran. In stark contrast, most segments of the Treasury market are currently underperforming, as shown by a range of ETFs.
Initiating a war is relatively straightforward; bringing it to a close is significantly more complicated. This notion is increasingly reverberating within financial markets as the consequences of the Middle East conflict become more pronounced. While the economic effects have varied, the previous optimism surrounding the U.S. economy’s insulation is beginning to wane. The markets are now demanding higher risk premiums as compensation for this uncertainty.
Trend Watch: Global Markets & Portfolio Strategy Benchmarks
Inflation concerns weighed heavily on markets last week, which is hardly a surprise at this stage. However, the unexpectedly strong U.S. payroll data for May revealed that the world’s largest economy continues to show resilience amid an energy crisis. Consequently, Treasury yields naturally increased as investors began to recognize the potential for longer-lasting inflation risks, supported by a robust economy. This raises the likelihood that the Federal Reserve may resume raising interest rates soon.
While these concerns should not be overlooked, it may still be premature for strategy-focused investors to assume that a worst-case scenario is certain. Certain indicators suggest that a market correction was overdue, especially after the S&P 500 Index had experienced nine consecutive weeks of growth, a rather rare occurrence, as noted by The Motley Fool. The odds for a pause were already high even prior to Friday’s surprisingly positive jobs report.
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Last week saw declines in global asset allocation strategies as well. All of our proxy ETFs fell sharply, with the aggressive strategy (AOA) suffering a notable drop of 2.3%.
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● How to Win a Trade War: An Optimistic Guide to an Anxious Global Economy
Soumaya Keynes and Chad P. Bown
Review via Reason
Drawing from the wisdom of ancient Chinese strategist Sun Tzu, who cautioned that “he who wishes to fight must first count the cost,” and the foresight of Joshua from the 1983 film WarGames who concluded that “the only winning move is not to play,” the authors of How to Win a Trade War have crafted an engaging and swift analysis. Soumaya Keynes, a journalist with the Financial Times, and Chad Bown, a senior fellow at the Peterson Institute for International Economics, explore the disintegration of the global trading system following COVID, Brexit, and significant political shifts in the United States.
Measuring Bubbles via Put-Call Disparity: A Model-Free Approach
Robert A. Jarrow (Cornell U.) and Simon Kwok (U. of Sydney)
May 2026
This paper provides model-free approaches to establishing lower and upper limits for identifying asset price bubbles. Assuming only that the market adheres to the no-free-lunch-with-vanishing-risk condition and permitting all trading strategies, our methodology avoids rigid parametric models and the no-dominance assumption. We demonstrate that put-call disparity offers a measurable lower limit and is justifiable within the context of short-sale constraints. Further, the lowest price of an out-of-the-money (OTM) call option sets the upper limit. To ensure empirical reliability, we adapt these bounds through data-driven regularization and bootstrap techniques, allowing us to distinguish genuine bubble signals from market microstructure noise while minimizing dependence on thinly traded deep OTM options. Analyzing S&P 500 index option prices spanning from 1996 to 2025, we identify a persistent bubble during the COVID-19 period, capturing market exuberance before the 2000 dot-com and 2008 financial crises. Additionally, the empirical analysis indicates that the market violates no-dominance and remains incomplete.
U.S. junk bonds continue to deliver the highest trailing one-year yields among the major asset classes, as indicated by a set of ETFs up to June 3. Approximately half of these funds report yields that are outpacing the current rate of annual consumer inflation.
The U.S. economy is not entirely shielded from the ongoing energy disruptions originating from the Middle East; however, the ramifications may be subtle in the upcoming second-quarter GDP report. This inference is supported by current economic nowcasts.
