A Remarkable Streak Under Pressure
The U.S. equity market is currently riding one of its more impressive runs in recent memory. The S&P 500 has now posted eight consecutive weekly gains — its longest winning streak since 2023. What makes this streak especially striking is the environment in which it has been achieved. Yields, oil, and geopolitical anxiety surrounding Iran have all weighed on sentiment, yet the market has continued to grind higher, propelled by optimism around artificial intelligence and a willingness among investors to buy every dip.
Heading into a long weekend, there is always a reasonable concern about derisking. We have seen this behavior pattern before: traders trim exposure ahead of multi-day market closures because escalations — particularly geopolitical ones — tend to crystallize precisely when markets are unable to react. Still, in the immediate term, conditions have improved relative to the start of the week, with relief in yields and oil prices helping the broader risk tone.
The Hard Data–Soft Data Divide
A central tension in the current environment is the gap between hard and soft economic data. The hard data continues to look relatively constructive. Manufacturing PMI readings, for example, are moving in a healthier direction, even as services have cooled slightly. The manufacturing sector, often viewed as a leading indicator of broader cyclical health, is holding its ground.
The soft data, by contrast, tells a much darker story. The latest Michigan consumer sentiment release was poor, and what stood out most was the inflation expectations component. One-year inflation expectations came in around 4.8%, while the 5-to-10-year reading reached approximately 3.9% — well above what was anticipated and notably skewing higher. These are not numbers that should be dismissed; long-run inflation expectations are precisely the variable central banks watch most closely, because once they become unanchored, they are notoriously difficult to pull back down.
Behavior Speaks Louder Than Attitudes
Despite this gloomy attitudinal backdrop, market participants are behaving very differently from how they say they feel. This disconnect — where consumer sentiment sits near record lows even as equity markets push to record highs — has become one of the defining features of the present cycle. The behavioral signal deserves more weight than the survey signal. It is one thing to express pessimism in a questionnaire; it is another to actually deploy capital. And capital, by every meaningful measure, is still being deployed.
The evidence is visible in both the equity market and the options market. Buying-the-dip behavior persists, and consumer-facing companies continue to describe a resilient operating environment. That gap between what consumers say and what they do — and what investors say and what they do — is the real story.
A Narrow, Tech-Heavy Rally
That said, the rally is not as broad as headlines might suggest. Leadership remains tightly concentrated, with technology doing the overwhelming majority of the heavy lifting. Interestingly, there has been a discernible rotation underway: investors have been moving out of individually selected high-flying single stocks and into more broad-based ETFs. On the surface, this looks like diversification. In practice, it may not be, because technology now constitutes such a large share of the S&P 500 that buying the broad index still leaves investors with significant tech exposure. They may have rotated out of specific names, but the sector concentration in their portfolios remains substantial.
Technology has also dominated the earnings narrative, leading on earnings surprises and serving as the principal driver of first-quarter earnings growth — which, candidly, was excellent. The recent NVIDIA results reinforced that pattern, with the stock showing the kind of typical reaction one expects after a strong beat.
The pressing question now is whether the market's expectations are achievable. Consensus calls for roughly 18% earnings growth across the remainder of the year, a demanding bar given the economic headwinds visible elsewhere in the data.
What Bonds Are Telling Us
Looking ahead, attention turns to PCE and CPI data. The PCE has traditionally been the Federal Reserve's preferred inflation gauge, and analysts can use components from PPI and CPI to forecast PCE with reasonable accuracy. The expectation is that the print will be elevated — that part is already largely priced in. The more important question is how the bond market responds.
There is a genuinely interesting tension here: equities appear to be focused on earnings, while bonds are focused on inflation. The two narratives have not yet intersected, but at some point they will. One useful framework is to watch the spread between the earnings yield (the inverse of the price-to-earnings ratio — earnings divided by price) and the bond yield. That spread has compressed meaningfully over the past few months as bond yields have climbed. The question it raises is whether equity investors will continue to accept paying an additional risk premium while bond yields rise.
This matters because, at a certain point, bonds become attractive again on their own merits. Once 10-year yields move into the 4.6%–4.8% range, real demand for duration tends to reappear, and a basic asset allocation question begins to drive flows: where should capital actually sit? At today's 4.5%–4.6% level on the 10-year, the case for bonds is already starting to look compelling — though many investors remain reluctant to take on duration risk with a Middle East conflict potentially dragging on through the summer.
The Bigger Picture
What we are watching, in essence, is a market climbing a wall of worry. Attitudes are grim, but behavior is constructive. Tech-led earnings strength is doing enormous work to justify valuations, while bond yields lurk as a competing pull on capital. The hard data remains supportive, the soft data has deteriorated sharply, and the inflation expectations component is flashing a warning that should not be ignored.
The path from here depends on whether earnings can keep delivering at the rate the market is pricing in, whether inflation expectations remain anchored despite the recent uptick, and whether the bond and equity markets eventually reconcile their differing views. Until that reconciliation happens, the divergence between sentiment and behavior — and between bonds and stocks — will continue to define the trading environment.