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Original Title: The Bond Market Isn't Buying This Rally. Neither Am I.

Original Author: KURT S. ALTRICHTER, CRPS

Original Compilation: Peggy, BlockBeats

Editor's Note: When the stock market quickly recovers its war-time losses and approaches historical highs, a narrative that "the risks have been cleared" is regaining dominance. However, this article reminds us that if we only look at the equity market, it's easy to misjudge the current real environment.

The signals from bonds and crude oil are not consistent: rising interest rates and high oil prices point to sticky inflation, limited policy space for the Federal Reserve, and geopolitical conflicts not yet truly resolved. In contrast, the stock market is simultaneously pricing in low inflation, restarting rate cuts, controllable costs, and conflict mitigation—a highly idealized set of premises.

The author believes this rally stems more from momentum than fundamentals. Driven by "fear of missing out" trading behavior, prices can deviate from reality in the short term but must ultimately return to the range determined by macroeconomic variables.

When divergences appear between different asset classes, the real risk often lies not in who is right or wrong, but in how this divergence will be resolved. The current question is not whether the market is optimistic, but whether this optimism has run ahead of the data.

Below is the original text:

"Rule Two: Excesses in one direction will lead to an opposite excess in the other direction." — Bob Farrell

The S&P 500 has completely recovered all its losses incurred during the US-Iran conflict. As of yesterday, the index was 1% higher than on February 27th (the day before the first strike on Iran) and is just a stone's throw away (less than 1%) from its all-time high.

In just 10 trading days, the market has completed a full round trip.

Let me be blunt: if you only look at the stock market right now, everything seems to be "back to normal." War breaks out, the market falls, then quickly rebounds, everything returns to normal, and everyone moves on.

But if you broaden your perspective, this is not the reality of what is happening.

The bond market is not confirming this rally.

The crude oil market is not confirming this rally either.

When the world's two most important markets are telling a different story than the stock market, this is absolutely not a signal that can be ignored.

So, what exactly is the current stock market pricing in?

For the S&P 500 to stand above its pre-war levels, the market essentially needs to simultaneously believe in the following things:

The current oil price is not yet high enough to substantially suppress consumption.

The Federal Reserve will ignore hotter-than-expected inflation data and still choose to cut interest rates.

Higher raw material and transportation costs will not erode corporate profit margins.

The Middle East conflict will be sufficiently close to resolution within six months, thus no longer posing a risk.

Perhaps things will indeed unfold this way. I'm not saying it's impossible. But this is a rather aggressive set of premises, and the data currently released by the bond and crude oil markets do not support these assumptions.

From a fundamental perspective, the stock market's pricing is already close to a "perfect expectation."

Let's look at more specific data

On February 27th, the day before the war broke out, the closing levels of key indicators were as follows:

10-year US Treasury yield: 3.95%, while yesterday it closed at 4.25%, up 30 basis points from pre-war levels.

WTI crude oil: $67.02, currently priced about 37% higher than then.

2-year US Treasury yield: 3.38%, yesterday it closed at 3.75%, up nearly 40 basis points from pre-war levels.

Now, let's break down the implications behind these changes one by one.

The 30-basis-point rise in the 10-year yield after the war broke out is not because the bond market is more optimistic about economic growth. Current consumer sentiment is weakening, and confidence remains fragile. This rise in interest rates is essentially the bond market "quietly" pricing in inflation.

The signal it sends is clear: higher oil prices are transmitting into the overall price system, and the Federal Reserve's future policy space may not be as accommodative as the stock market assumes.

A 37% rise in oil prices over 6 weeks is not the performance one would expect if the market truly believed a real, lasting agreement between the US and Iran was imminent.

If traders were truly confident in a stable ceasefire agreement, oil prices should have already fallen back to the $70 range and continued downward. But that is not the reality. Oil prices remain elevated, meaning the crude oil market is not pricing in the same "conflict nearing resolution" expectation as the stock market.

And the 2-year US Treasury yield remains 40 basis points higher than pre-war levels, which in itself is a direct challenge to the narrative that "the Federal Reserve is about to cut interest rates."

The 2-year yield is the most sensitive indicator for observing interest rate expectations; it reflects the Fed's policy path more directly than any other asset. And right now, the signal it sends is: the Fed's room for maneuver is smaller than the market imagines. This affects almost all the valuation logic supporting the current stock market rally.

So, who is actually right?

The stock market might be right, I'm willing to admit that. If a substantive ceasefire agreement truly emerges, bond yields could fall rapidly; once supply issues are credibly resolved, oil prices could also drop significantly. This wouldn't be the first time the stock market led and other markets "caught up" or followed later.

But there's another explanation, which I believe is currently underestimated.

A significant part of this rally is not driven by fundamentals, but by momentum. Traders' reluctance to short in an uptrend itself continuously pushes the market higher. Such buying can indeed sustain the trend longer than it should.

But it doesn't change the underlying logic.

And the underlying reality is: oil prices remain high, interest rates are still rising, and the Fed's room for rate cuts is more limited than what the bulls need.

Rallies driven by fundamentals tend to be more sustainable; rallies driven by momentum are usually more fragile and shorter-lived. This difference is particularly crucial when considering whether to add positions near historical highs. As the market valuation chart above shows, the current stock market is already pricing in a "perfect scenario."

My actual judgment

Over the past 10 days, the situation has indeed improved somewhat, I won't deny that. I'm also not someone who mindlessly spreads pessimism.

But there remains a clear gap between the stock market's pricing and the reality reflected by bonds and crude oil, and this gap has not narrowed. I am closely monitoring this.

Currently, the stock market is at the most optimistic end of the range; bonds and crude oil are closer to the middle, reflecting a world where inflation still exists, the Fed's policy space is limited, and the conflict is not truly resolved.

This divergence will eventually be resolved, and there are only two paths:

Either a real ceasefire agreement is reached, oil prices fall back to around $70, the Fed gains clear room to cut rates, ultimately proving the stock market right;

Or none of these happen, and the stock market will fall back, converging towards the levels currently reflected by bonds and crude oil.

And for now, bonds and crude oil show no signs of moving towards the stock market; it seems more like the stock market needs to move down to "align" with them.

The next inflation data will be released on May 12th. If my judgment is correct and CPI is above 3.5%, then the 2026 rate-cut narrative will basically be declared over.

If you continue to add positions at this level, you are essentially betting that everything develops in the most ideal direction: the war ends smoothly, without interference from "Trump's sudden remarks"; inflation remains controllable; the Fed cuts rates as planned; corporate profits hold steady. These four things must all hold true simultaneously. If any one of them deviates significantly, the market's downward adjustment process could be swift and severe.

In contrast, I prefer to remain patient rather than chase a rally that is "quietly denied" by two key asset classes. If long-term signals point to buying, we will naturally gradually increase positions according to our strategy.

And don't forget—the only certainty is that everything will change.

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