I have serious reservations about the medium-term outlook for US equities, and to the extent I’m less constructive than I might’ve been otherwise, it’s not because I’m some kind of irritable partisan.

Bonds still seem very skeptical about… well, about a lot of things, but particularly about the notion that a run-it-hot approach to an economy already firing on most, if perhaps not all, cylinders, is compatible with a rate-cutting cycle and tame inflation. When you toss in tariffs and a plan to deport a meaningful share of America’s low-wage labor, you’re left staring at a conjuncture which, at the least, doesn’t look disinflationary.

In my Thanksgiving week-ahead preview, I highlighted a chart from BMO’s Ian Lyngen, who illustrated the trajectory of front-end US yields following the first Fed cut from the last seven rate-cutting cycles. Suffice to say this time looks quite a bit different, and the same’s true further out the curve. Here’s Lyngen’s chart for the 10-year.

10s aren’t quite the anomaly twos are on this score, but the situation still looks a little dicey. While it “isn’t rare that 10-year yields are higher this far into the cutting process, it’s atypical that they’ve sustainably traded more than 50bps higher than they were at the time of the initial rate reduction,” Lyngen wrote, adding that if you exclude the current cycle, “since the late 1980s, 10-year yields never climbed by more than 60bps within the first 50 trading days of the first rate cut.”

In short: Bonds don’t like it. And unlike stock jockeys, the bond vigilantes don’t give out passes for politics, and they’re notoriously difficult to placate with rhetoric. There are only two ways to back the bond vigilantes off: Bend the knee (e.g., Janet Yellen tipping smaller-than-expected coupon increases at the November 2023 refunding) or threaten them with indiscriminate slaughter (i.e., QE or YCC).

The point: Donald Trump isn’t going to be able to talk bond yields down should they rise enough to cause problems. That’s not a feline he can safely grab. If he tries, it’ll bite his hand off. (Raaaaawr.) Scott Bessent gets that, despite what I imagine is an otherwise limited understanding of that particular subject.

In his latest, BofA’s Michael Hartnett captured the current state of things pretty well. It would, he wrote, “almost be a surprise” if the equity melt-up didn’t continue in the near-term, given that Trump “sees rising stocks and crypto as a tool to boost animal spirits, and few believe [he’ll] allow a bear market.” At the same time, anticipation of Trump’s policies could boost the macro data “as companies front-run tariffs and hoard labor ahead of immigration controls,” he went on, noting that bond yields were able to stay “in [a] Goldilocks range” this year thanks to rate cuts.

The figure on the right, below, shows 2024 on track to be the third largest “easing” year in a quarter century, behind only 2009 and 2020, with 124 more rate cuts forecasted by BofA’s economists for 2025.

The figure on the left shows BofA’s “investment clock.” 2024 generally fit into the upper-right quadrant, which suggests 2025 could be an inflationary bear steepener.

Hartnett went into some detail on the bank’s “clock,” which says the “equity-bullish ‘recovery’ phase of lower rates and higher EPS [in] 2024 [will] be followed by a commodity-bullish ‘boom’ phase of higher EPS and higher rates” in 2025, when bonds may start to price-in an “‘inflation boom’ and price-out rate cuts.”

The implication — and this brings us full circle — is that bond yields “could limit additional risk asset” upside early next year, should 10-year US reals exceed 2.5%, the long-end breach 5% or twos 4.5%, according to Hartnett.

But there may be a saving grace. Some market participants, he wrote, are “optimis[tic]” that Trump recognizes, appreciates and respects the inflationary risks of “political malpractice.”

I’ll just leave that there for everyone to chew on. Or choke on. Whichever the case might be.