Despite a significant repricing of Fed rate expectations and a correction in valuations, equity markets have remained stable. This is because accelerating earnings are potent enough to deliver returns, challenging the notion that markets need dovish monetary policy to advance.

Traditional analysis links real GDP growth to corporate profits. However, in an inflationary period, strong nominal growth can flow directly to revenues and boost profits even if real output contracts, especially if wage growth lags. This makes nominal figures a better indicator for equity markets.

Contrary to conventional wisdom, re-accelerating inflation can be a positive for stocks. It indicates that corporations have regained pricing power, which boosts earnings growth. This improved earnings outlook can justify a lower equity risk premium, allowing for higher stock valuations.

A regression analysis of the 10-year Treasury yield against nominal GDP indicates a fair value of approximately 5.8%. This suggests the bond market's push for higher yields is fundamentally justified by strong economic growth, rather than being purely speculative, as policymakers attempt to suppress yields.

Interest rates are driven by nominal GDP (real growth + inflation). A strong economy combined with persistent inflation means nominal GDP is rising, increasing the "fair value" for interest rates. If the Fed doesn't keep pace, it's effectively easing policy.

Contrary to popular belief, low interest rates historically indicate a weak economy with high demand for safety and liquidity. Conversely, rising rates signal expectations of economic growth or inflation, as capital seeks better returns in the real economy rather than safe government bonds.

Contrary to the popular narrative focusing on debt, the main force pushing interest rates up is robust nominal GDP growth, fueled by aggressive post-pandemic fiscal policy. This era of 'fiscal dominance' changes the fundamental drivers of the bond market.

Contrary to popular belief, the current upward inflationary pressure is a net positive for equities. It is not yet at a problematic level that weighs on growth, but it is high enough to prevent a more dangerous disinflationary growth scare scenario, which would trigger a full-blown "risk-off" cascade.

Contrary to textbook economics, the market controls interest rates. Rising long-term bond yields, driven by strong nominal GDP growth, are forcing the Federal Reserve to follow with higher policy rates, rather than the Fed leading the market.