The S&P 500 rose 15% and the Nasdaq 21% in Q2, powered by AI-linked chip stocks.
But underneath the equity euphoria, rates have been sending a more cautious signal.
Back in January, markets were pricing in Fed rate cuts. Then the Iran conflict spiked energy prices, and new Fed Chair Kevin Warsh's debut turned more hawkish than expected. The Fed's preferred inflation gauge climbed to 4.1% — more than double the 2% target.
The result: yields have moved higher, not lower, over the past few months. Bond prices fall as yields rise, so fixed income investors have had a bumpier ride than the record-setting equity headlines suggest.
Gold and silver — often a hedge against rate uncertainty — had their worst quarters in over a decade, down 13% and 20% respectively. That's a signal that the market is now pricing rate hikes, not cuts, as a real possibility for the rest of 2026.
The takeaway for fixed income investors: equity strength and rate direction aren't always moving together right now. With inflation running hot and a new, less predictable Fed chair, the path for yields into H2 2026 is worth watching closely.
Source: WSJ, CNBC, Forbes, Bloomberg News
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