Once upon a time, and in truth, as recently as four years ago, there was a strong relationship between the spot price of gold and the inflation-indexed market yield of 10-Year Constant Maturity U.S. Treasuries.

It was an inverse relationship. When the inflation-adjusted interest rate on the 10-year bonds fell, signaling an increase in inflation, the price of gold would rise. And vice-versa. If the inflation-adjusted yields of these treasuries rose, indicating falling inflation, the price of gold would fall as well.

That made a sort of sense. But that relationship has broken down in the last four years. Starting from 17 March 2022, when the Federal Reserve finally acted to hike interest rates to combat the high inflation unleashed by the Biden administration a year earlier, the relationship between the inflation-indexed 10-year Treasury and gold spot prices has steadily broken down.

We can see that in the following chart, in which the price of gold has fully decouples from the interest rate of the inflation-protected 10-year Treasury.

Most of this decoupling has taken place since 27 December 2023. At that time, the yield of the inflation-indexed 10-year Treasury was 1.64% and the price of an ounce of gold was $2,079. Since that date, the 10-year inflation-protected Treasury has ranged between that low and a high of 2.28% on 30 April 2024. Today, that yield is just below the middle of that range at 1.88%.

But the price of gold has soared during this time. In recent months, as the 10-year TIPS yield has ranged between, it soared to reach a high of $5,414.49 an ounce on 28 January 2026. In the weeks since, it has plummeted, losing over 10% of its peak value. All without any big change in the inflation-protected treasury yield.

It's like the carnival game "high striker". Gold prices are rising and falling by huge amounts independently of changes in yields and inflation.

In mathematics, the slope of a vertical line is described as "undefined". Which is to say there is no relationship between it and whatever the horizontal axis represents. In the case of gold prices, inflation, and the yield of 10-year U.S. Treasuries, we can say that in March 2026, no such relationship exists between these three things, nor has there been such a relationship in years.

Perhaps there never was. Or perhaps we're missing a bigger factor that's holding greater sway today. If we are, what do you suppose it is and why has it been able to cause the price of gold to change so much in during the last four years as compared to how it changed during the preceding 15 years?

Image Credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Wall Street bull and bear who are taking turns playing the high striker carnival game that is labeled 'GOLD PRICES' and the bear asks 'DIDN'T THIS GAME USE TO HAVE SOMETHING TO DO WITH INFLATION?".

Political Calculations' initial estimate of the total value of new home sales in the United States during January 2026 as measured by a time-shifted, partial twelve month trailing average is $27.37 billion, which is down substantially from December 2025's initial estimate of $30.36 billion.

The raw numbers for January 2026 are even worse. The U.S. Census Bureau's first estimate of the state of January 2026's new home market counted 48,000 non-seasonally adjusted sales at an average price of $499,500, which when multiplied together, rounds up to a total valuation of $23.98 billion.

The reason why isn't much of a surprise since January 2026 featured the largest and most severe winter storms in years. The northeast and midwest regions of the U.S. were very hard hit by the weather, which crashed new home sales in them. Here's how the National Association of Home Builders described the winter storms' impact on new home sales:

Sales of newly built single-family homes fell 17.6% in January, to a seasonally adjusted annual rate of 587,000 from a downwardly revised December reading, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales is down 11.3% from a year earlier....

“New home sales fell in January largely because of weather-related disruptions, even as mortgage rates eased modestly,” said Jing Fu, NAHB senior director of forecasting and analysis.

Political Calculations' estimates are designed to capture the underlying trend in the new home sales. The initial estimate for any given month is based on the U.S. Census Bureau's estimated number of new home sales multiplied by their average price for that month, which is averaged with the data for the preceding six months. These total valuation (or new home market capitalization) estimates are then updated as each new month's data is added to it, until it covers a full twelve months worth of data and as older data is revised, which continues until that data is finalized some 10 months after the month for which the data applies.

The benefit of this approach is that it 'centers' the trailing average in something closer to real time, which makes it easier to identify when changes in trend take place. The disadvantage is that the most recent data is incomplete and will be subject to revision during the next nine months as new estimates are incorporated and older estimates are revised.

The following charts present the U.S. new home market capitalization, the number of new home sales, and their average sale prices as measured by their time-shifted, trailing twelve month averages from January 1976 through January 2026.

Flat-to-rising trend for new home sales:

Average new home prices trending higher:

The lack of new home sales is helping contribute to an increase in the supply of new homes. New homebuilders are responding to the situation by offering bigger incentives to new home buyers and lowering prices:

... the inventory of homes for sale rose to a 9.7-month supply, up from eight months in December, according to the U.S. Census. That is 7.8% higher than January 2025.

More supply and less demand led builders to drop prices. The median price of a home sold in January was $400,500, the agency said, a decline of 6.8% year over year. Prices for existing homes are still flat nationally, but builders report increasing incentives to get buyers in the door.

Data from March does not appear to be any better. An estimated 37% of builders cut prices in March, an increase from February’s 36%, according to the National Association of Home Builders.

This continuing weakness suggests the environment is shifting to become more of a buyer's market for new homes in the first quarter of 2026. We'll see how that progresses in the months ahead.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 19 March 2026. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 19 March 2026. 

Image credit: House under construction photo by Ernie Journeys on Unsplash.

The S&P 500 (Index: SPX) dropped 1.9%, or 125.73 points, below its previous week's close to end the third trading week of March 2026 at 6,506.46. The index is nearly 6.8% below its 28 January 2026 record high close of 6,978.59.

The escalation of oil and gas prices resulting from the Islamic Republic of Iran's efforts to shutter oil container ship traffic through the Strait of Hormuz continued to set the big economic stories of the week. Oil prices rose during the week, reaching over $150 per barrel in the eastern Asian nations that receive the bulk of their oil supplies by sea from Persian Gulf nations.

Oil prices elsewhere have risen, but not by as much. In the U.S., West Texas Intermediate oil spot prices ended the week below $100 per barrel, or around $30 per barrel higher than in February 2026. This surge is expected to add inflationary pressures to the U.S. economy, which led to the biggest market-moving headline of the week that was. Rate cuts by the Federal Reserve are no longer on the table for 2026.

The CME Group's FedWatch Tool no longer projects any interest rate cuts through the end of 2026, which it now gives a 0% probability of occurring. Instead, the tool indicates a low probability of rate hikes, giving a 32% probability of a quarter point rate hike in the Federal Funds Rate being announced after the Fed's Open Market Committee meets on 28 October (2026-Q4).

Investors responded by sending stock prices lower, especially after the Fed acted to hold rates steady at the end of its two-day meeting on Wednesday, 18 March 2026. The latest update of the alternative futures chart puts the trajectory of the S&P 500 below the redzone forecast range we added several weeks ago, which is now pulling double-duty as a working counterfactual for indicating where the S&P 500 would be if not for the geopolitical event of the Iran war.

Using the mid-point of the redzone forecast range as a counterfactual reference, we find the S&P 500 ended the week of trading on 20 March 2026 about six percent below where it would have been in the absence of the event.

Here are the week's market-moving headlines, which prominently features the volatility of oil prices and the change in investor expectations for Federal Reserve rate cuts in 2026:

Monday, 16 March 2026

• Signs and portents for the U.S. economy:
• Falling oil prices send Wall Street toward its best day since the start of the Iran war
• Middle East oil exports drop at least 60% as Hormuz stays mostly closed, data shows
• US, China seek to wrap Paris talks on managed trade, agriculture deals for Xi-Trump summit
• Exclusive: US, China discuss farm goods, managed trade in 'remarkably stable' Paris talks-sources
• US manufacturing output increases; homebuilder sentiment ticks up
• Fed minions trying to cope with foggy crystal ball:
• Fed to present an updated outlook looking through the fog of war
• Bigger trouble still lurking in China:
• China's new home prices extend drop in February as recovery remains elusive
• BOJ minions waver on plan for interest rate hikes:
• BOJ to stand pat as Iran war muddles outlook, sustain rate-hike bias
• ECB minions excited to participate in meeting of central bankers to address surge in oil prices:
• Oil shock sparks rate repricing in historic 'G4' central bank week
• BIS urges central banks not to rush reactions to energy price spike
• Wall Street recovers, ends green as Brent stays at $100/bbl and the Middle East war continues in focus
• Wall Street ends higher as traders return to AI stocks

Tuesday, 17 March 2026

• Signs and portents for the U.S. economy:
• Oil prices jump more than 2% after renewed Iranian attacks on UAE
• US pending home sales rebound on lower mortgage rates before Iran war
• Fed minions starting to realize how badly they let Bidenflation get out of control, expected to keep rates steady:
• US 'transitory' inflation turns five and is still a big brat
• Bigger trouble, stimulus developing in China:
• China's fuel export ban to further tighten Asia supply
• China oil majors resume seeking Russian oil after a 4-month halt, sources say
• China boosted crude stockpiles at start of 2026, but is not using them
• Chief BOJ minion obsessed with trying to generate wage-price inflation cycle in Japan:
• Bank of Japan chief stresses need to hit 2% inflation backed by wage gains
• Badly informed Eurozone politics infects ECB minions' succession:
• How to boost EU competitiveness? Choose a German ECB chief
• U.S. stocks extend gains as investors expect no change to interest rates
• Wall Street ends up as traders turn to Fed

Wednesday, 18 March 2026

• Signs and portents for the U.S. economy:
• Oil extends gains to rise 5.6% after Iran attacks Gulf energy facilities
• US oil exports seen rising as WTI discount to Brent hits widest in 11 years
• US poised to waive summer gasoline regulations to ease prices, sources say
• US producer inflation runs hotter in February, expected to accelerate further amid Iran war
• Before: Fed minions expected to hold rates steady, then do as they were expected:
• Fed likely to hold rates steady as Iran war shocks policy debate
• Fed to signal rate hike an option? Possible, though unlikely
• After: Fed does the expected, chief Fed minion says he won't be forced out despite blowing out budget for Fed building renovation:
• Fed leaves interest rates unchanged, expects inflation to climb
• Fed's Powell confirms Trump is stuck with him until DOJ probe is 'well and truly' over
• Powell says tariffs keeping inflation elevated, Fed watching energy prices closely
• In a shift, one Fed policymaker sees a rate hike ahead
• Powell says 'stagflation' is a 1970s term, not what we face today
• Another oil price jump further pushes out Fed rate-cut odds
• ECB minions say it's no time to ease bank rules:
• ECB sees underpriced geopolitical risks, warns against easing bank rules
• Wall Street snaps winning streak as Fed keeps rates unchanged, inflation fears loom
• Wall Street ends sharply lower after Fed keeps rates unchanged

Thursday, 19 March 2026

• Signs and portents for the U.S. economy:
• Brent up but off highs, US crude finishes with small loss
• Natural gas prices soar as doomsday scenario unfolds; Iran, Israel strike infrastructure
• US pump prices jump 30% since Middle East war began, headed toward $4 a gallon
• Wall Street bank capital to fall 4.8% under new rules, in win for industry
• US new home sales drop to near 3-1/2-year low in January
• US fixed 30-year mortgage rate hits three-month high amid Iran war
• Bigger trouble, lesser stimulus developing in China:
• China's robust iron ore imports are going into storage, not steel
• China set to keep rates steady as Mideast war clouds inflation outlook
• BOJ minions' plans to hike Japan's interest rates thwarted by Iran war:
• BOJ keeps rates on hold, warns of inflationary pressure from Iran war
• BOJ Governor Ueda's comments at news conference
• ECB minions hold Eurozone interest rates steady, staring to think their perfect monetary policy might need rate hike to fight oil price inflation:
• ECB keeps rates unchanged but signals readiness to act on energy
• Lagarde comments at ECB press conference
• ECB expects rate hike talks in April with move more likely in June, sources say
• Wall Street ends in the red for a second day as inflation fears take center stage
• Wall Street ends down as traders see no rate cuts before 2027

Friday, 20 March 2026

• Signs and portents for the U.S. economy:
• Oil falls as US, allies discuss efforts to boost supply and open Strait of Hormuz
• Fed minions trying to learn from worst bank failure in years, having trouble reading monetary needs of U.S. economy:
• Fed's Bowman says new external review of Silicon Valley Bank failure underway
• Bigger trouble developing in China:
• China's record oil output reaches limits of what's possible
• Other central banks starting to think about rate hikes:
• ECB, BoE could hike as soon as April on inflation pressures, brokerages say
• ECB governors signal vigilance over inflation as banks bet on rate hikes
• Bank of England to raise interest rates in April, July on inflation risks, J.P. Morgan says
• ECB minions say they will keep their perfect monetary policy for Eurozone and won't change it unless they must:
• ECB will not be inactive or overreact, ready to act to stabilise inflation, Villeroy says
• U.S. stocks end lower for a fourth consecutive week as Iran war concerns loom over sentiment
• Wall St slips as Middle East turmoil clouds Fed outlook
• U.S. stocks' decline persists despite efforts to minimize concerns about the Iran war, oil prices sustain

The Atlanta Fed's GDPNow tool forecast of real GDP growth in 2026-Q1 fell to +2.3%, rebounding from the +2.7% growth anticipated a week earlier.

Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Federal Reserve official pointing to a news ticker that says 'IRAN WAR: OIL PRICES SURGE' as other officials take a box marked '2026 RATE CUTS' away from a suit wearing Wall Street bull and bear who are upset".

The ranks of lower and middle class households in the United States is thinning. The reason why is remarkable: more households are earning higher incomes, allowing them to move up into the top ranks of the nation's income spectrum.

You don't have to take our word for it. We've organized the U.S. Census Bureau's inflation adjusted data for household income from 1967 through 2024 into three groups. The first group contains households with annual total money income of $49,999 or less, which represents lower income-earning households. The second group contains households earning between $50,000 and $149,999 to represent middle income-earning households. The third group contains all households earning $150,000 or more.

The following chart confirms the percentage share of lower and middle-class households in the U.S. is shrinking as the percentage of upper-class households increases.

U.S. households earning $150,000 or more in inflation-adjusted constant 2024 U.S. dollars have risen from 4.6% of all households to 26.1% from 1967 through 2024. Middle-ranked households earning between $50,000 and $149,999 has fallen from 52.4% to 43.8% of all U.S. households. The lowest-ranked households earning real incomes of $49,999 or less has plunged from accounting for 43.0% of all U.S. households to just 30.2%.

A similar pattern holds for U.S. families. See more commentary on this phenomenon here and here.

Reference

U.S. Census Bureau. Historical Income Tables: Households. Table H-17. Households by Total Money Income, Race, and Hispanic Origin of Householder. [Excel spreadsheet]. 25 August 2025.

When we reviewed the carnage among Business Development Companies, or BDCs, when recapping February 2026's dividend decreases, its concentration within this sub-sector of the financial services sector of the U.S. economy really stood out.

BDCs make their money by loaning money they either raise from investors or borrow themselves to small- and medium-sized enterprises that can't raise money by going public and selling stock and also financially distressed businesses. The business models of most established BDCs involve borrowing money, then loaning it back out at higher interest rates, where they pocket the difference.

That makes the profit margins of BDCs vulnerable to rate cuts. Because their loans are tied to the Federal Funds Rate, when the Fed cuts that rate, it negatively impacts BDC profits. In the last three years, BDCs have gone from a rising or high interest rate environment (March 2023 through August 2025), to a falling rate environment (September 2024 through December 2025).

The performance of the VanEck BDC Income Exchange Traded Fund (ETF: BIZD), which includes over 30 BDCs in its market-cap weighted index, gives a good sense of how BDCs performed in these different environments. The following chart shows BDCs rising or flat in the rising rate environment, but then either stalling or falling as the Fed shifted gears into its rate cutting mode.

But that's not the whole story. During the rate cutting period, which initiated the pressure on BDC profits, BDCs have had to cope with the DeepSeek AI shock, peaking just ahead of that event on 19 February 2025. Then they faced the Liberation Day global tariffs shock event of 2 April 2025, plunging with the rest of the market, before going on to recover. That lasted until August 2025, when the return of rate cuts initiated a new downtrend that was followed in January 2026 with a new AI shock event that undermined the business prospects of the Software-As-A-Service (SaaS) firms. Many of which were getting their funding to grow from BDCs.

With AI technologies seemingly set to destroy any potential profitability these firms had, many BDCs were suddenly faced with having to write down large portions of their portfolios. But, not all BDCs are in that boat.

When we looked at the stock performance of individual BDCs, we found a clear characteristic that divided them. That characteristic is their governance and what quickly became evident was that internally-managed BDCs were generally outperforming BDCs whose investments are managed by external parties.

To illustrate that difference, we randomly selected six externally-managed BDCs to compare their performance against an equal number of internally-managed BDCs over the last three years. Here is a list of the BDCs in our performance sample:

Let's get to the results. The following chart visualizes the relative performance of the stocks of the two kinds of BDCs:

We've shown the 3-year returns for the benchmarks of the S&P 500 (Index: SPX) at 72.01% and BIZD at -10.79% to show how they compare against the range of the two categories. The externally managed BDCs range from a high of +2.79% to a low of -29.22%, with four of the six BDCs having a negative return.

By contrast, the internally managed BDCs range from a high of +44.22% to a low of -16.96%, with two of the six BDCs having a negative return.

But it's not just recent market events driving that outcome. In the next two charts, we show how the sample of internally managed and externally managed BDCs compare with the performance of the S&P 500 over the last three years. The first chart tracks the internally managed BDCs:

The next chart follows the externally managed BDCs over the same period.

We find the internally-managed BDCs have sustained better performance than the externally-managed BDCs over all portions of this three year period, which can be seen in their relative performance being closer to that of the benchmark S&P 500 index. That better performance occurred both in a period in which rising interest rates provided BDCs with a tailwind and the current period in which falling interest rates are providing fierce headwinds against the BDCs.

When we started this exercise, we thought we'd mainly be discussing the role of how changing interest rates have affected the performance of the BDC sub-sector of the financial services industry, leading so many of these firms to cut their dividends in recent months. We didn't expect to run into a more interesting question: how much does management matter in a publicly traded company? In the case of BDCs, whether the people managing their lending business work directly for the firm or are employed outside of it would appear to have a significant impact affecting the returns of the shareholders who own the companies.

Image credit: Microsoft Copilot Designer. Prompt: "A cartoon illustrating a Business Development Company that is internally managed versus a BDC that is externally managed", the result of would appear to succinctly explain at least one reason why the outperformance of internally-managed BDCs over externally-managed ones exists!