U.S. Stocks and Bond Market Experience 'Severe Divergence,' Wall Street Warns of Growing Pullback Risk: Don't Easily Anticipate the Peak

BlockBeats News, May 19, as the U.S. Treasury yield continues to rise, several large asset management institutions on Wall Street have begun to warn that the "divergence" between the stock market and the bond market is intensifying, and the market may face a pullback risk.

It is reported that since April, AI and tech stocks have driven the S&P 500 to continuously hit new highs. However, at the same time, U.S. bonds have been continuously sold off, with the 10-year U.S. bond yield rising to a one-year high. The market is concerned that the Middle East conflict and high oil prices will re-ignite inflation and force the Fed to maintain a high-interest-rate policy.

Vincent Mortier, Chief Investment Officer of Eastspring Investments, said, "A stock market pullback is only a matter of time, not a question of whether it will happen." He pointed out that the current market sentiment, narrative, and positioning have undergone a "complete reversal" in just six weeks.

Data shows that since the ceasefire news, the S&P 500 has risen by 12%. However, the one-year inflation swap rate has broken through 4% for the first time since 2025, indicating that the bond market is repricing inflation risk.

Raphaël Thuin, Chief Strategist at Tikehau Capital, said that there is currently a "stock market hitting new highs repeatedly, credit spreads narrowing, and the market extremely bullish," but the energy and interest rate markets are pricing in long-term economic shocks, leading to an "irreconcilable contradiction" between the two.

However, some institutions believe that corporate earnings are still supporting the stock market. Giles Parkinson, Stock Director at Trinity Bridge, said that current corporate earnings are "breaking out," and the logic of the market rally is not over yet. A senior asset management executive summarized that the bond market has issued a "yellow warning" about high oil prices and sustained inflation, while the stock market continues to bet on optimistic expectations, stating, "The market will continue to party until a real disaster strikes."