If you only read the headlines this spring, you might expect markets to be in retreat. A war that began in late February has pushed oil back to $100 a barrel. The government’s first read on fourth-quarter growth was revised down to a barely-there 0.5%. Inflation ticked back up to 3.3%. And yet stocks are once again knocking on the door of record highs.
Bonds, on the other hand, have had their roughest stretch in years. The two stories — stocks shrugging off bad news while bonds finally react to it — are the heart of this update.
Why the economy keeps shrugging off bad news
Start with oil. A jump to $100 used to be a body blow. It matters far less today because we simply use less of it. Energy has fallen from about 5.7% of the average household budget in 2007 to roughly 3.7% now — and the country produces more than 40% more goods and services than it did then while burning less gasoline. A barrel of oil just doesn’t have the punch it once did.
Wars tell a similar story. Going back to 1939, the average stock-market dip around a major geopolitical shock has been about 4%, with a quick rebound. What actually takes markets down is recession — and a recession looks unlikely right now. Beneath the weak headline growth number, the real-time data is strong: factory activity expanded in March for the first time in four years, services are humming, retail spending is running near 7% above last year, and employers added 178,000 jobs in a month when economists expected a small fraction of that.
There’s an engine underneath all of this: the wealth effect. Household net worth has surged to record levels, and when portfolios and home values are higher, people spend more freely. Older, wealthier households — who hold most of that wealth — are doing much of the spending, and households overall carry surprisingly little debt relative to income. The honest caveat is that this strength isn’t evenly shared; lower-income families are feeling more squeezed, even as their wages rise.
What’s really moving stocks: earnings
If earnings are the engine, then 2026 is an ambitious year. Analysts expect S&P 500 earnings to grow roughly 19% this year and 17% next year — a sizable step up from about 10–11% in each of the prior two years. If companies deliver, today’s prices look reasonable. That’s the bull case in a sentence.
And here’s where we owe you candor rather than cheerleading: those are bold estimates, and even seasoned strategists admit they aren’t sure exactly how companies get there. A large share of the expected gain is concentrated in a handful of giant technology firms. Part of the bet is that companies can keep growing sales without adding many workers — leaning on automation and artificial intelligence to do more with the same headcount. Whether that fully materializes is the open question of the year, and it’s the assumption we’re watching most closely.
The price tag looks more reasonable than it did
After this spring’s pullback — a decline of about 9% from the peak, milder than last year’s roughly 21% slide — the S&P 500 trades at about 19.6 times expected earnings, down from around 23 times. That’s still above the long-run average of about 16, so we wouldn’t call stocks cheap. But the most expensive corner of the market, those megacap tech names, has come down meaningfully too. Prices are less stretched than they were a few months ago.
Expect a bumpier ride — even in a good year
One measure we track compares how much investors are paying for earnings against how much turbulence they expect ahead. It recently swung to a level that signals unusual calm — the kind of complacency that, historically, doesn’t last long. The encouraging part: after past readings like this one, the market was higher a year later about four times out of five, with an average gain north of 8%. The catch is that the road there was rarely smooth. Volatility tended to spike — often more than once — within the following few months.
In plain English: history suggests we may well finish the year higher, but with a couple of stomach-churning dips along the way. Those dips are normal. They are, quite literally, the price of admission for the returns stocks offer over time.
Bonds: where the real action has been
If stocks have taken the headlines in stride, bonds have not. The past several weeks brought one of the sharpest selloffs in long-dated Treasuries in years. The 10-year yield pushed toward 4.6% and the 30-year briefly cleared 5% — levels we haven’t seen consistently since before the 2008 financial crisis. This is the most significant move in markets right now, and it deserves a clear explanation.
A few things are happening at once. The inflation worry the headlines have been warning about has actually showed up in the data, driven largely by energy costs tied to the Iran conflict and concerns over the Strait of Hormuz. Bond investors hate inflation more than almost anything — it eats the real value of every future coupon they’re owed — so they demanded higher yields as compensation, and prices fell.
The deeper story is the return of the term premium. Translated from jargon: that’s the extra yield investors demand simply for tying up their money for a long stretch of time. For most of the past fifteen years that premium was unusually low, suppressed by central bank bond-buying and a long run of tame inflation. It has now been reawakened. In practice, that means long-dated yields are being set less by what the Fed is doing today and more by deeper concerns — how much new debt the Treasury must issue to fund growing federal deficits, whether inflation will stay sticky, and how much rope global investors are willing to give the U.S.
One quieter risk is that corporate bonds show little of this stress. Their yield spread over Treasuries is near historic lows, suggesting investors want very little extra compensation for corporate credit risk. If growth weakens even slightly, prices may have to absorb the adjustment.
Here is the constructive counterpoint, and it matters: this strain is concentrated at the long end of the curve. Short-dated Treasuries still trade off Fed expectations and offer real income with far less price risk. For clients we’ve been gradually de-risking, that’s a natural place to sit in. You’re paid reasonably to wait without absorbing the bumps the long bond is now delivering. The broader takeaway is that the familiar playbook — slower growth always means rising bond prices — has been challenged repeatedly over the past eighteen months. Bonds absolutely still belong in your portfolio. But the question of which bonds, and how long, deserves more thought than it did when rates were near zero.
What this means for you
Our message hasn’t changed, and the current backdrop reinforces it. Stay invested and diversified — over the long run, stocks have returned roughly 10% a year, and the only reliable way to capture that is to stay in your seat through the bumps. On the bond side, we’re paying close attention to where on the curve we own duration, and definitely leaning toward the shorter end where we can collect real income without the volatility the long bond is now delivering. Federal deficits, the eventual squeeze on Social Security, and tax policy down the road are all real long-term issues — not 2026 problems, but exactly the kind of long-range realities your plan is built to absorb.
Don’t let headlines set your strategy; the war, the oil price, and the gloomy growth print are precisely the things markets have learned to look past. When the next round of choppy months arrives, treat the volatility as the toll, not a sign that something is broken. And if anything has changed in your life — or you’d simply like to talk any of this through — please reach out. That conversation is always the best investment you can make. Contact Aspire Planning Associates at (925) 938-2023 to schedule a conversation today!.
