I was reading a strategy piece from JP Morgan the other day. It begins with pictures of eight badly mangled pretzels, illustrating the contortions investors allegedly (and actually, in my view) to avoid thinking about the negative effect rising interest rates have on stocks.

It goes on to say that if long-term interest rates–let’s pick the 10-year Treasury–stays at 2% or below, the stock market will be fine. If, however, they rise to 2.5% (or beyond) and stay there, it’s a whole new ballgame. I agree completely. The iron law of microeconomics is that what determines price is the availability of substitutes. If the yield on bonds basically triples from its opening level this year, the income-seeking part of our brains is going to find that very enticing vs. the 1.5% yield on the S&P 500. So some money is going to shift away from stocks.

What would cause the yield to rise above the 1.8% level that prevailed just pre-pandemic? A booming economy and a shrinking pool of available unemployed workers. JP Morgan offers three arguments that we’re much closer to full employment than I believe we are: small businesses are reporting record numbers of open “hard to fill” positions; there are few job seekers per job opening; and manufacturing delivery times are very stretched. A fourth is that over the past decade the Fed has invariably overestimated inflation and tightened too soon. There’s a fifth, implicit, argument as well: that “bond vigilantes,” aka professional bond portfolio managers, will start the tightening process ahead of the Fed, as they have often done in the past.

I’d add a sixth: one of my bigger faults is that I tend to be too optimistic. So maybe I’m a pretzel twister, too. The employment figures are worrisome. My question is to what degree they’re influenced by the fact of the pandemic, with people either unwilling to take the risk of returning to work and possibly infecting their families or bound by childcare duties while schools are closed. If the pandemic is a reason for worker shortage, as it comes under control not only will the economy blossom but the available labor pool should increase as well.

We’ll see.