Market logic changes! For the first time since the Iran war: U.S. energy stocks open lower, U.S. bonds and gold “decouple” from oil prices

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The market is sending a rare signal: the inflation trade that has dominated Wall Street for weeks is unraveling, and the recession trade is quietly taking over.

Overnight, US stocks opened higher but closed lower. After opening gains, the three major indices could not sustain their momentum; tech and chip sectors became the biggest drags on the S&P 500, and the energy sector also closed down slightly. At the same time, WTI crude oil futures rose more than 3%, breaking above the $100 mark, but US Treasury yields moved lower, and gold surged sharply at one point.

This combination of moves is extremely rare—according to JPMorgan, this is the first time since the Iran conflict erupted, and only the second time this year, that energy stocks and broad market stocks have fallen together, while both bonds and gold have risen together.

JPMorgan interprets this signal as a key shift in market trading logic: “This may prove that market trading logic has shifted from inflation trades to recession trades.” At the same time, money markets are synchronously adjusting pricing: the probability of a Fed rate hike in 2026 has dropped sharply from about 35% last Friday to about 20%, and the market is once again betting on a mild rate cut later this year.

Oil Breaks $100, but US Treasuries and Gold Strengthen Counterintuitively

Overnight, WTI May crude oil futures rose $3.24 to close above the $100 round number for the first time since July 2022. According to the market logic in previous weeks, soaring oil prices should boost inflation expectations, which would push down bond prices and lift yields.

However, Monday’s moves were the opposite. By the New York close, the 10-year benchmark US Treasury yield had fallen by 8.95 basis points, declining throughout the day; the 2-year Treasury yield fell by 9.22 basis points.

Gold soared dramatically at one point, with a gain of up to 3.6%. Fed Chair Powell gave a dovish statement that day, further strengthening bets on rate cuts. The money market immediately adjusted its pricing, reducing the likelihood of a Fed rate hike in 2026 from about 35% last Friday to about 20%, and repricing a mild rate cut within this year.

This “decoupling of bonds and oil” marks the market’s shift from short-term inflation panic to medium-term recession concerns.

Inflation Expectations Quietly Retreat, Growth Concerns Emerge

Despite the continued surge in energy prices, long-term inflation expectations have barely moved up. Measured by five-year inflation swaps, the market’s five-year inflation expectations are about 20 basis points lower than January’s peak, returning to the volatile levels of last April.

Goldman Sachs analyst Chris Hussey pointed out that the market’s core this week remains the tug-of-war between growth and inflation: on the inflation side, rising oil, natural gas, aluminum, and derivatives prices are spiraling upward, threatening to spill over into the globe, especially Asia; on the growth side, ongoing uncertainty in the Middle East and energy price shocks are dimming the outlook for labor demand. Goldman’s view is that in multiple scenarios, bond yields will eventually fall, long-term equity volatility will increase, and the market will then face “economic growth panic” rather than “persistent inflation panic.”

Francisco Simón, Santander Asset Management’s Head of European Strategy, also stated that although inflation remains a concern, the potential drag on growth and confidence should begin to provide a hedge, limiting further rises in yields, and added that currently the bond market is one of the clearest tools for pricing the macroeconomic impact of the conflict.

Fiscal Stimulus Expectations Priced In, Morgan Stanley Flags US Bond Pricing Logic

Matthew Hornbach, Chief Rates Strategist at Morgan Stanley, suggested that the US rates market is increasingly reflecting an expectation—that after energy-driven demand destruction, fiscal stimulus will follow. This suggests that the bond market’s strength is not simply driven by risk aversion, but that the market is already positioning in anticipation of the next round of policy responses.

Apollo Chief Economist Torsten Slok pointed out that there is a clear premium in current 10-year rates: under normal Fed expectations, the 10-year rate should be around 3.9%, not the current 4.4%, meaning there is about a 55-basis-point “excess premium.” Sources of this premium may include fiscal concerns, quantitative tightening, weakening foreign demand, and doubts about the Fed’s independence. Slok said, “Investors need to seriously consider what these 55 basis points truly mean.”

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