Stock market is feeling invincible

Summary of the video’s main points

• Stocks keep rising despite high bond yields. Over the past week, the S&P 500 rose ~1.2% and the NASDAQ gained over 2%. The speaker argues the key tension remains between equity growth expectations and rising bond yields.

• 10-year Treasury yields are surging to multi-year highs, pressuring valuation theory—but stocks aren’t falling. The 10-year yield is around 5.1%, heading toward ~5.2%, described as levels “not seen since 2006.” The speaker reiterates a standard DCF/discount-rate logic: higher yields increase discount rates, which should reduce stock valuations. However, in this case, stocks rise alongside yields, which they say “distorts” the usual valuation framework.

• Explanation for the “irrational” market: rates up, stocks up, so narratives must be overriding fundamentals. The speaker says people argued earlier that markets had “already priced in” rate hikes, but they maintain that does not explain stock price strength when the Fed outlook tightens further. They emphasize the market can stay irrational and recommends reacting to price action rather than denying it.

Three drivers proposed for why the market went up this week

1. Peace/war-related expectations lowering oil prices and easing inflation outlooks

   • After attacks affecting Saudi oil infrastructure, oil spiked above $100, then fell below that after Saudi logistics improvements.
   • This week, Saudi reportedly maintained stable supply (~7.5 million barrels/day, even higher than before the attack).
   • The U.S. is said to have pressured regional actors to close loopholes enabling Iran’s oil-related revenue laundering, including freezing $12B in escrow in Oman and Iraq.
   • The result: oil reportedly fell to around $92/bbl (~$10 lower).
   • The speaker’s logic: lower oil → lower inflation expectations → improved market outlook, though they note yields stayed high, implying the effect is more indirect via inflation expectations.

2. Fed “anti-inflation” rhetoric supporting higher rate expectations and lifting long yields

   • Fed officials (including Christopher Waller and Thomas Barkin) emphasize the need for restrictive policy until inflation cools convincingly, pointing to labor-market resilience that allows rates to stay high.
   • The market is described as pricing high probabilities of additional rate hikes (cited roughly as 99% for one, 88% for two, and 55%+ for three).
   • This rising hike probability helps explain higher long-term bond yields, even while stocks rise.

3. Fed messaging on AI—market treats AI as insulated from macro pressure

   • The speaker claims the U.S. sees AI as a potential “third pillar” (alongside dollar strength and military power).
   • They argue the Fed is effectively signaling AI investment should not be suppressed because it supports productivity and supply-side investment, potentially acting disinflationary in the long run.
   • A key quoted theme (from Jeffrey Sherman) is that AI infrastructure formation is “systemic” and could be disinflationary, giving investors confidence that even if the Fed tightens against inflation, it may avoid harming AI buildout.
   • Conclusion: AI tech is perceived as “invincible”/“inevitable,” helping explain why stocks—especially AI-linked—are rising despite higher yields.

Presenters / contributors mentioned

• Christopher Waller (Fed official, quoted)
• Thomas Barkin (Fed official, quoted)
• Jeffrey Sherman (Fed official, quoted)
• Kevin Warsh (mentioned as an AI proponent)
• “Alright guys…” / primary speaker of the video (not named in the subtitles)