Historically, oil price spikes have often preceded recessions. However, this pattern only holds when corporate earnings growth is decelerating or negative. With current earnings accelerating, the economy is more resilient, and the market is correctly pricing a lower probability of an oil-induced recession.

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.

Despite the market reaching new highs, trading multiples are down 20%. This performance is based on fundamental earnings growth, not inflated multiples like the dot-com boom. This suggests a more stable foundation for the current market.

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.

The common narrative blames rising yields on government debt. However, a more significant driver is often strong nominal GDP growth. This environment is actually positive for equities, as it boosts revenues and earnings, making stocks an effective inflation hedge.

Despite rising rates, corporate fundamentals are exceptionally strong post-COVID. High EBITDA growth and low leverage mean companies are resilient, justifying the low risk premium (tight spreads) investors are receiving for holding their debt.

The primary risk from rising U.S. debt isn't that businesses and consumers will stop borrowing. It's that investors will reallocate capital from equities to high-yielding bonds, which now offer attractive returns. This shift in investor preference, not a traditional credit crisis, is the key market stress to monitor.

Conventional wisdom suggests investors would sell stocks to buy more attractive, higher-yielding bonds. However, current market data shows capital flowing into both asset classes. Furthermore, their positive day-to-day correlation indicates investors are not treating them as simple substitutes, which challenges typical asset allocation assumptions.