If you stopped checking your investment portfolio in March (after seemingly constant down days), it’s safe to log back in and take a look. Just today, major US equity indexes hit new all-time highs intraday, erasing the losses experienced just weeks ago.

Equity investors seem comfortable looking past the ongoing/yet to be resolved conflict in Iran. Remember – equity prices are forward looking. A resurgence in bullish equity sentiment indicates that investors believe the future will be better than was believed a few weeks ago. For stocks to have hit all time highs, equity markets are seemingly assured of a bright future. Here are a few things that seem to be believed as true given the trend line: higher oil prices won’t last long enough to dent growth, the Fed will still cut (even if inflation spikes given higher oil prices), corporate earnings will remain high/rising, and Middle East conflict is close to final resolution.

However, it may be a bit premature to declare this rally as a “sure thing” for one key reason. Another major component of markets – the bond (also known as fixed income) side of the equation has yet to confirm the rally.

When the Middle East conflict started, the US 10 year rate was at 3.95%. On April 14, it closed at 4.25%. The 2 year was at 3.38% and is now at 3.75%. Two key measures of bond market sentiment are markedly higher. What does each potentially indicated.

Longer-term rates (like the US 10 year) are likely being driven higher by one key factor – inflation expectations. If inflation is higher in the future, bond investors will require a higher rate of interest than today to offset that impact. This sharp rise in the 10 year (during a period when a “flight to safety” should cause rates to fall), appears to indicate the bond market expects higher inflation moving forward due to lasting upward pressure on energy prices.

The 2 year rate sitting almost 40 basis points higher than pre-conflict levels tells a related story – that being an increasingly lack of confidence that the Federal Reserve will cut the Fed Funds Rate under these circumstances. The 2 year rate tracks expected Fed actions as best as any measure can and it’s saying the Fed seems to have less options than it did a few months ago.

Given that the equity market and bond market are sending “mixed signals” the next question is, which market has it right? That’s impossible to know. My guess is that with most “arguments,” the truth lies somewhere between two endpoints. We won’t know until this plays out.

What can investors do now? Revisit your portfolio and rebalance to your targets. Odds are your equity allocations may be slightly overweight (given the strength) and your fixed income may be a bit underweight (given recent weakness from rising rates). Take a look and adjust as needed. If you have cash on the sidelines, it may be a nice opportunity to lock-in attractive rates that are higher than they were just over a month ago. As always, small and educated actions in place of large, uneducated bets.

Onward we go,