What's Next For Markets Inflation Psychology And The Oil Shock
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Mar 29, 2026 Discussion centers on the surge in interest rates and how rising yields and mortgage costs are tightening financial conditions. Analysis of the powerful link between oil shocks and renewed rate volatility. Exploration of why bonds and stocks are moving together and why traditional diversification may be breaking down. Historical context on inflation-driven market stress and the risk of demand destruction from higher energy costs.
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Oil Spike Pushed Rates Back To Center Stage
- Interest rates are the primary force currently hurting markets, amplified by the oil spike that began in late February.
- Michael Kantrowitz notes a ~90% correlation between front-month oil and the 10-year yield, driving mortgage rates and weakening financial conditions.
Don’t Assume Fed Will Raise Because Of Oil Shock
- Don't assume the Fed will hike in response to a supply-driven oil shock; market tightening may achieve the same effect.
- Michael recommends patience from central banks because rising long yields, mortgage rates, and falling stocks are already creating demand destruction.
2022 Created Lasting Rate Sensitivity In Stocks
- The post-2022 regime created persistent inflation anxiety, reversing the long-run negative correlation between rates and equities.
- Michael shows that since the late 90s the correlation flipped positive, but 2022 reintroduced rate-sensitivity and investor PTSD.