Everybody Wants To Rule The World
- Scott Poore
- 2 hours ago
- 7 min read
Data releases showed this week that the underlying economic fundamentals may not be so bad. Bond markets, the labor market, and equity concentrations highlight the musings this week, as investors and the Fed grapple with how much risk to take and
where the market is going from here. This week we gather inspiration from the hit song "Everybody Wants To Rule The World." recorded by Tears for Fears in 1985. Here is some trivia about the song:
This song sold more than 4 million copies in 1985 and reached #1 on the Billboard charts. Ironically, the band's other hit released a few months earlier "Shout" was propelled to #1 after "Everybody Wants To Rule The World" due to its popularity.
The band thought the song was simple to write and record as they described it as "effortless." In fact, as they were wrapping up recording "Shout," guitarist Orzabal, came into the studio and played two chords on his acoustic guitar, which became the basis for the song.
The main line of the song "everybody wants to rule the world" was in the 1980 Clash song "Charlie Don't Surf." Clash band member Joe Strummer once ran into Roland Orzabal in a restaurant informing Orzabal "you owe me a fiver" in reference to the lyric lift. Strummer responded by reaching into his pocket and handing Strummer a five pound note.
This song has been covered at least 8 times by artists such as Miley Cyrus, Weezer, Harry Styles, and others.
The song is about the quest for power, and while the music is rather upbeat, the lyrics are about the abuse of power and the misery it can cause.
Here's what we've seen so far this week...
Help Me To Decide. Tears for Fears, as we noted, really had a melancholy tone to the lyrics of "Everybody Wants To Rule The World" despite the upbeat music. The lyrics indicate that people have a choice to pursue power or pursue happiness. That seems like a choice potentially facing the Fed as the Jobs Report was better than expected this
this morning. First, the market was expected about 55,000 new jobs, but August surprised to the upside with at least 162,000 new jobs - nearly 3 times the projection.1 Second, July's negative jobs print of -23,000 was revised higher by 44,000 and now shows at least 21,000 jobs added in July.1 Lastly, the June jobs figure, which wasn't a bad number, was also revised higher by 11,000. Unfortunately, the surprise in August's jobs and the positive revisions are more of a "good news is bad news" situation as a stronger job market could give the Fed room to hike interest rates.
The price of oil has moved higher this week with the increased tensions in the Middle East.2 The U.S. and Iran have exchanged military salvos this week over disagreements on the Strait of Hormuz traffic. While the Cleveland Federal Reserve is still projecting
August's year-over-year CPI to come in at 3.4% (even with last month's reading), September's projection is showing a potential increase if the price of oil does not come down.3 All of this, plus this morning's jobs number pushed the futures on September's rate hike odd higher to 60% after it was roughly a 50:50 toss-up just yesterday.4 Next week's release of August Producer Price Index and Consumer Price Index could prove quite important as to how the Fed may vote on interest rates in two weeks.
Acting On Your Best Behavior. Tears for Fears in this song admonished listeners practice their best behavior versus trying to rule the world. While we have reiterated on multiple occasions the difficulties with the Fed raising rates and how those rate-hiking
cycles have led to lower market returns, not all rate hikes are bad. When the Fed has hiked rates after leaving rates alone for 2 years or longer, the results can vary based on the size of the hike. For example, as shown in the table above, when the Fed hikes only 25 basis points, the first few months typically turn lower, but the longer-term results are higher on average. A 25 basis point rate hike has seen the S&P 500 turn lower by more than 2% on average the following three months. However, a 50 basis point rate hike after a hiatus, like the one in 2022, saw the S&P 500 down at least 4% over 3 months, but also lower by 10% twelve months afterward.
Interest rates on the long-end of the yield curve are higher over the past two months. Some of that likely has to do with the expectation of a Fed rate hike, however, dynamics in the bond market could also be an explanation for the change in rates. Since hitting a
two-month low on June 26th, the yield on the 10-year Treasury Bond has increased 39 basis points.5 The massive amount of AI debt that continues to be issued in 2026 could be a factor in the rise in interest rates. In other words, the surge in long-dated hyperscaler issuance (roughly $310 billion in 10-year equivalents in 2026 so far, according to the chart above) could be adding modest upward pressure on the long end of the Treasury curve by competing for the same limited pool of duration-seeking buyers—pensions, insurers, and other liability-driven investors.6 Somewhat related, the 30-year mortgage rate reached a 1-year high of 6.71% this week, which does not help potential buyers in the real estate market.7
Nothing Ever Lasts Forever. While the band Tears for Fears meant the lyrics of the song to be a bit dour, the bottom line is that life involves change. Life has good times and bad times, and markets follow that pattern in cycles. After several years of a historic bull market, pundits in the late '90s began declaring asset allocation as "dead."
In March of 1999, Pensions & Investments published an article challenging the wisdom of the Brinson-Hood study that nearly 90% of returns come from the asset allocation decision.8 Just a few months before that article was published, William J. Bernstein, co-founder of the "efficient frontier", dedicated an article to the defense of the investing philosophy after the media had asked "What good is diversification anyway?"9 Investors tend to forget diversification until it typically demonstrates its value during bear markets. In 1999, fixed income far under-performed the broad equity market (see graph above). Yet, when the Dot.com bubble burst in 2000, fixed income far out-performed, once again, demonstrating the need for diversification as a 60:40 mix between equity and fixed income held up much better than the broad equity market.
We're beginning to see history begin to repeat itself this year as more market pundits are once again declaring diversification "dead." Articles such as "The 60/40 Portfolio Died Years Ago" and "The End of Easy Diversification" were penned just a few months ago.10 11 Oh, and by the way, fixed income is under-performing equities in 2026 similar to how it
did in 1999. Equities, as measured by the S&P 500 Index, are up more than 13% year-to-date12, while fixed income, as measured by the Aggregate Bond ETF, is slightly down by about 30 basis points.13 Not to be outdone, investing legends are having a tough time keeping up with the "broad" equity index this year, similar to 1999. Warren Buffett is lagging the S&P 500 Index by at least 8% this year, while he under-performed the index by more than 40% in 1999. Buffett is not likely to have become stupid overnight, so investors would be wise to investigate the potential pattern that something could be amiss in markets right now. A notable investing guru of the '80s & '90s was George Vanderheiden. He managed one of the flagship funds at Fidelity until he lagged the S&P 500 Index in 1999 by at least 16%. In early 2000, George retired while his portfolio was under-weight technology and over-weight value-oriented stocks.14 His successor proceeded to load the portfolio up with technology stocks and the rest is history. However, an article published by Morningstar (no longer available on the web) in October of 2000 noted that George's original portfolio would have held up better in 2000 than how it performed after the changes.14 While we're not suggesting investors load up on value-oriented stocks today or abandon technology positions in their portfolio, a reasonable assessment of risk and portfolio diversification could prove helpful given the current market concentration environment, as we have been indicating.15
Click here to watch the ending scene of "Real Genius" that highlights "Everybody Wants To Rule The World".....
https://www.investing.com/economic-calendar/nonfarm-payrolls-227
https://privatebank.jpmorgan.com/content/dam/jpm-pb-aem/global/en/documents/eotm/rear-window.pdf
30-Year Fixed Rate Mortgage Average in the United States (MORTGAGE30US) | FRED | St. Louis Fed
https://www.vaneck.com/uk/en/blog/etf-insights/the-end-of-easy-diversification/
AGG – Performance – iShares Core US Aggregate Bond ETF | Morningstar
https://www.eudaimoniagroup.com/post/what-s-going-on
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Disclosures
The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.
Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
Past Performance does not guarantee future results.
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