Equities are pushing to new highs on ceasefire optimism, but if you look at the bond market, it’s telling a completely different story. Yields are still elevated, oil is still up big from recent lows, and rate cuts are getting priced out.
That usually doesn’t happen in a “risk is gone” environment.
Feels like equities are pricing the best-case scenario, while bonds are still anchored in inflation and uncertainty.
Curious how you guys are reading this, is this just a lag between markets, or is one of them clearly wrong here?
Stocks are acting like everything is fine, bonds clearly disagree.
byu/ChartNavigator ininvesting
Posted by ChartNavigator
13 Comments
I don’t care about short term noise. I just stay invested.
Expectation of higher inflation can also simultaneously push up equities and bond yields. The real return of equities doesn’t have to be higher, just the nominal.
Bonds are currently negative yield which is a fucked situation. Combined with Bessent shorting oil keeping price down, AI “bubble”, people have no clue where to park their money. Stocks become a safe haven of a sort to hedge against inflation.
People are moving to “hard” assets and have been for some time. It’s why gold and silver mooned previously. Now people are rotating into stocks that make “stuff”.
Even if the ceasefire shatters, indexes (my guess) won’t drop a ton. You’ll see some stocks crater, some stocks maintain value or increase.
I think the one scenario that investors are least hedged for is massive demand destruction. Industrial domestic stocks have performed pretty solidly throughout the war. Same stocks that were -60% during 08.
Part of me thinks it’s naive, a larger part of me has no fucking idea what to expect in 6 months.
Debt Mkts are the “smart money.” Equity mkts aren’t always logical and at the point I started letting the mkt trend dictate my actions instead of my rational brain my returns increased substantially. Coming out of college I knew stuff, listened to economist, and man that cost me big from 2010-2020.
The mkt is strong, labor is ok, the bond mkt is not ok with the countries leadership or debt. The above won’t imperil our equity Mkt until it does.
80/20 portfolio asset buying this dip.
65/35 portfolio until this last dip. Every 1% up I’ll flip 1% back to safer money from here.
I underperformed so badly from 2016-2019 because of “how in the hell is this nut our president.” Since then I’ve made a fortune trading and investing through his mistakes
Couldnt care less, i invest since over a decade during ups and downside not carlinga about noise and its worked out amazing for me
The debt mkts and the world want the United States to stop being idiots financially and on the global stage.
“I used to think that if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody”. James Carville
inflation is more unkind to fixed income than to equity by nature.
Companies can raise price should inflation happen, their nominal profit can verywell increase in an inflation cycle.
Past performance does not indicate future results. However as a survivor of liberation day, we appear to be following the same playbook. Stocks push higher whilst uncertainty exists and before you know it, the opportunity has passed. We had 6 months of chop/down in the lead up, I think it’s still early. I am not disagreeing with what you said though, it’s intentionally counterintuitive. The market will move up harder parting shorts & put option holders from their money.
On stocks, they should be valued according to the PV of long term earnings.
Do you believe that the current crisis materially affects a 20 year earnings stream for the corporate sector?
I would argue that the equity markets are being more rational now than the tariff tantrum or 2022 where the market quickly realised that it had overly marked down equity prices
Stocks seem to be trading more on sentiment than fundamentals right now. It feels like the market’s ignoring reality, but in the long run it can still swing either way, correcting sharply or continuing higher depending on how things actually play out.
bonds don’t lie nearly as often as stocks do. when equities and fixed income diverge like this, the bond market has historically been the smarter money. worth paying attention to.
Real estate in USA is highly expensive and mired in debt which means rolling over loans at higher interest rates and cash income flows turning negative. This affects the entire USA banking sector and ultimately looks like a colossal bailout will be needed, at the taxpayers cost. This house of cards will not spare equity markets.
Which bond or bond market are you referring to?