Bonds worry, while stocks enjoy the "bliss trade"

The stock market and the bond market are telling different stories about the economy: Bonds fear doom, while stocks see boom. Why it matters: That's a bit confusing for investors and policymakers looking to these markets to make decisions — or for anyone trying to get a read on (waves hands) everything . The intrigue: Stocks are betting on what former IMF chief economist Gita Gopinath calls the " bliss trade " — a belief that stocks can keep rallying even as bond investors price in more inflation risk. Zoom in: Central to this thinking is that any real geopolitical shocks will be offset by government spending, Gopinath, now a professor at Harvard University, wrote in the Financial Times. That's what happened in the 2022 energy shock — when European governments spent to help cover energy costs for households. Or during the pandemic, when the U.S. government spent trillions of dollars supporting people and companies through the crisis, driving huge amounts of growth. Zoom out: "It's a belief in the strength of the economy based on the experience of the past several years," she tells Axios. Markets are pricing in the idea that fiscal policy will come to the rescue — even though with debt levels higher, that's not a sure bet. The big picture: The disconnect between the stock market and other assets has become the story of the war. Oil prices have been moving in a different direction than equities, as Axios has reported . State of play: A lot of this is about AI. Investors are looking past the risk of the war and pushing stocks to all-time highs on tech optimism and on better-than-expected earnings. The S&P 500 is currently on track for a seventh straight week of gains. On Thursday, investors pounced on a new AI stock, the chipmaker Cerebras Systems, driving its shares up 68%. The other side: To be sure, bond investors and stock investors see the world differently. Bond investors just want to get paid back, with interest. So they ...

Original source: Axios