The S&P 500 is cruising toward a 5% gain in March, which would be its best month since October.
Why it matters: The turn higher for the market — after it was down by more than 10% — underscores what attentive investors have come to understand over the last couple of years. The stock market isn't the economy.
Flashback: Remember when the economy was in an all-out collapse in the aftermath of the pandemic? Food bank lines miles long? Unemployment that was quite literally off the charts?
Why? Government actions. The Federal Reserve cut interest rates to near zero and Congress spent gobs of money to keep the economy from imploding. (Stock markets like free money.)
Yes, but: We're still seeing the same kind of stocks that led the market higher in 2020 — so-called long-duration stocks that benefit from lower interest rates — leading the market higher right now.
The intrigue: This may seem a little surprising as long-term interest rates — essentially the yield on the 10-year Treasury note — are still going up. In theory, that should hurt these stocks because they're supposed to be sensitive to rising rates.
My thought bubble: One way to square the circle? The yield curve.
The bottom line: Essentially, stock market investors may be betting that the Fed's going to hike interest rates hard, which could cause a recession — and eventually return the economy to the sort of slow growth, low-inflation environment that served tech stock investors well for over a decade.
