Something’s Gotta Give

You’ve heard me talk about “relationship problems” in financial markets in the past. It’s the phrase I use to point out when variables that typically behave a certain way in relation to one another are behaving outside those norms. Often the abnormal behavior is not the “problem” per se, but that these relationship problems don’t last forever and are likely to correct themselves – eventually.

One of the most stark relationship problems of this cycle is the one between real Treasury yields and price-to-earnings ratios (P/Es). I’ve covered this one before, but it’s a biggie and it remains dislocated, so it deserves to be covered again.

In a typical environment, these lines should move in similar directions and be closer together. (Note: the real yield is inverted on this chart, when yields are rising the magenta line falls). In other words, the spread between them should be tighter, and as real yields fall (i.e. the magenta line rises), P/Es should rise (i.e. the blue line rises). That’s what a more typical relationship would look like.

That’s not what’s happening right now: The gap between the two is currently very wide and does not appear to be narrowing.

Stock Valuations & Real Rates

This relationship problem presented itself between 2010 and 2016, although in reverse – P/Es were on the bottom and real yields were on top (i.e. negative). It took roughly seven years for the lines to converge, and just like in rocky relationships that do get better, it happened through a combination of both variables moving.

How long will it take for the gap to narrow this time, and will the lines ever fully converge again?

This Ends One Way Or Another

I am of the mind that this time is not different, and the two lines will converge again. Others are of the mind that this time is different, and suggest that some relationships are forever changed. I can agree that the details and drivers of market environments do change thanks to innovation (financial and technological), product mixes, demographics, and regulations, but many conventional rules of market behavior do not.

Regardless of which school of thought you land in, the argument is one that will continue into perpetuity. There are periods of time when each side will look “right” and others where each side will look “wrong”. You can make money in either case.

My expectation is that the gap between these two lines narrows slightly for a period of time before converging quickly and in a more dramatic fashion. The narrowing process could happen with the backdrop of a relatively healthy economy, sturdy profit margins, and fiscal and monetary policies that don’t present any major surprises. In that case, I’d expect real yields to fall and approach a level closer to 1% (currently 1.77%), and P/Es to compress slightly as earnings growth increases and market levels remain stable or even fall slightly.

We are roughly three years into this current dislocation, and as previously mentioned, the last major dislocation lasted six years. Perhaps we’re only halfway done, but there’s no knowing. What I do feel confident in is that the dislocation will end, one way or another.

Reading People’s Faces

If I were a gambler, I’d put my money on the P/E ratio being the element that has to move more than real yields. But that almost seems too easy. Of course it would make sense for some of the froth to come out of markets after three years (if we include 2025 YTD) of double-digit returns in the S&P and Nasdaq.

Nevertheless, I’m finding it very difficult to come up with ways the real yield would fall enough to narrow the gap. Particularly when looking at this chart of the nominal 10-year Treasury yield and real GDP growth.

Yields Usually Reflect Growth Expectations

In theory, the nominal 10-year Treasury yield should be close to the sum of real GDP growth and 10-year inflation expectations. Currently, the 10-year yield is at 3.97%, 10-year inflation expectations are at 2.28%, and the latest expectation for Q3 GDP growth from the Atlanta Fed is 3.9% annualized.

That admittedly simple math would suggest the 10-year Treasury yield should be closer to 6.2%, which would make the gap between the two lines even wider. So that can’t be plausible (famous last words).

What we’re left with is a gap that is likely to narrow at some point, and the best we can do is make educated guesses about how that might happen. If it is in fact the P/E ratio that needs to fall, we all better brush up on our poker skills of reading people’s faces… because after all, our moves in the stock market are highly dependent on what we think other people are going to do with the same information.

As they say, this too shall pass (perhaps we learned that by watching the gold market this week.) I’m positioning for this to last a while longer, and for the more likely scenario to be a compression in P/Es.

Want more insights from Liz? The Important Part: Investing With Liz Thomas, a podcast from SoFi, takes listeners through today’s top-of-mind themes in investing and breaks them down into digestible and actionable pieces.

SoFi can’t guarantee future financial performance, and past performance is no indication of future success. This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.

Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Liz Thomas is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Form ADV 2A is available at www.sofi.com/legal/adv.

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Have you ever wondered how a friend or coworker your age managed to buy a home while you’re struggling just to keep up with your bills? The answer might be The Bank of Mom and Dad.

Last year, one in four first-time homebuyers used a gift or loan from family or friends to make their down payment, according to data from the National Association of Realtors^Ⓡ (NAR). And in some pre-pandemic years, it was an even higher proportion — about one in three.

Between 6%+ mortgage rates, steep post-pandemic property prices, and few starter homes to choose from, buying your first house or apartment can feel prohibitively expensive. The typical (median) down payment in the third quarter of this year was over $30,000, well over double the $13,900 it was six years ago, according to Realtor.com data. First-time buyers accounted for just 24% of all buyers last year — a historic low (and about half of the peak of 50% reached in 2010,) according to NAR.

So what? There’s no denying that help with the down payment can give first-time buyers a way into this challenging real estate market. But it’s become less common, maybe because a one-time cash infusion doesn’t change that mortgage rates are more than double what they were in 2021. (The increase in rates alone adds over $600 to the typical monthly mortgage payment on a $400,000 home.)

If a cash gift or loan is not an option for you, don’t lose hope. Here are some reasons to feel more positive as a prospective first-time buyer:

•  It’s becoming more of a buyer’s market. Homes are sitting on the market for longer, sellers are cutting prices and adding concessions in many parts of the country, and the average 30-year mortgage rate is 6.27%, just about the lowest it’s been in a year.

•  First-time buyers who don’t have help from their parents still buy homes eventually, according to a recent study by a Federal Reserve economist who examined data from 2009 and 2021. They are just around 2.5 years older than those who do, the economist found.

•  If cash help isn’t in the cards, there are other ways you might be able to get help from your family: About 18% of Gen Zers and millennials surveyed by Redfin in May said they lived with family or friends in order to save money for their down payment.

•  The Trump administration is reportedly weighing new measures to help tackle the high cost of homeownership.

•  You don’t have to put 20% down. In 2024, the median down payment for first-time buyers was just 9%, NAR data shows.

Related Reading

One Answer to High Mortgage Rates: A Smaller Home (SoFi)

Will a Trump ‘Housing Emergency’ Mean a New First-Time Home Buyer Tax Credit? (Yahoo Finance)

Why Is the Number of First-Time US Homebuyers at a Generational Low? (The Guardian)

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

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This article appeared in SoFi's On the Money newsletter. Not getting it? Sign up here.

Twenty-five years ago, a good 50% of 16-to-19-year-olds had some kind of job. Now it’s more like 35%, according to government data.

There are plenty of theories about why teenage jobs are less common, including that there are more demands on today’s teens and that more entry-level jobs are being filled by adults in states with $20-plus minimum wages.

But is something important being lost when young people don’t work?

In addition to a paycheck, a part-time gig at the local ice cream shop or convenience store can offer invaluable life lessons about managing money, communicating professionally, and being resourceful. And research has found that high school seniors who worked part-time ended up earning more than those who didn’t once they graduated.

If you have a teenager in the family and they’ve never had a job, it’s worth at least considering. While many have their hands full with schoolwork, extracurricular activities, and today’s intense college application process, working can give them a leg up in other ways. Here’s more on the benefits, the tradeoffs, and how you can help your teen find a job if they want one.

The pros and cons of working as a teen

“Adulting” can be a hard adjustment. When teenagers have a job, they’re able to flex adulting muscles before they’re full-fledged adults, learning how to serve customers, be diplomatic with co-workers, communicate with strangers, and manage their time. These “soft skills” are often what employers notice first in interviews, and they can give young people confidence that they can make it in the “real world.”

Working for a paycheck also helps teach teens the value of a dollar. It can help them foster good financial habits like saving, opening a checking account, and creating a budget. Plus, making mistakes as a teen employee can be easier than when you’re an adult in a full-time position. And as an unofficial career coach, you can help your teen develop resilience to tough days, seasonal layoffs, or just not being hired.

A potential bonus perk of working as a teen? Employee discounts can stretch a high-school clothing or food budget further.

Of course, a part-time job may not be feasible with your teen’s schedule, particularly if it doesn’t leave enough time for their schoolwork. Or it may be a matter of limiting how much time they devote to a job: Past research found that teens working 20+ hours a week had worse academic performance, and a job that requires neglecting volunteer work or a social life probably doesn’t make sense.

Helping your teen find a job

If you and your teen decide some part-time work makes sense, here are some basic steps (and inspiration):

Talk it over. Begin by discussing your teen’s goals, interests, and availability. Is it the paycheck or the job experience? What industry are they interested in learning more about? Do they want to practice their customer service and people skills, or are they more passionate about working with pets? Do they want to work on their feet, or would they prefer a more stationary job? Motivated teens can even start their own side hustles, such as lawn mowing, tutoring, or babysitting. Entrepreneurship skills are always a plus. Ideally, the job they choose will be something they can learn from and enjoy.

Cast your net. Work with your teen to compile a list of job possibilities, including teen-friendly clothing retailers and movie theaters. Do they have a favorite restaurant, bookstore, or cafe that they would love to be more than a customer at? Instead of paying to go to the bowling alley, would they consider working there? Alternatively, check with your school’s career center for lists of teen-friendly employers and paid internships.

Paperwork prep. Have your teen create a resume (including paid work, volunteer experience, and school achievements), and help them polish it. When they start applying to full-time roles after graduation, they’ll be glad they already have a resume to work from. Gathering references can also be helpful. Your teen may need help filling out their job application and W-2 forms, as well as understanding how a paycheck divides up wages. Prep your short, fascinating speech on Social Security now. (Here’s a cheat sheet.)

Get out there. Encourage your teen to walk into businesses and drop off resumes. They may resist — in-person applications can feel more intimidating — but the old-fashioned approach can help them stand out, especially at places that regularly hire for entry-level jobs. Help your teen practice a brief, confident introduction to managers and assemble an outfit that says, “Hire me. (Please).” Once they land an interview, help them prep by role-playing common questions.

Be there for them. As your teen goes through the job-hunting process and starts working for the first time, be a sounding board and source of moral support. This will help them build resilience to common situations like getting passed over for a role or dealing with unpleasant colleagues. And these early experiences can put them ahead of the pack when they start their careers.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

OTM2025102201