As you might’ve noticed recently, equities aren’t inclined to believe central banks when it comes to policymaker pretensions to the “higher for longer” narrative.

The fact that big-cap US tech rallied 2% following Jerome Powell’s chat with David Rubenstein spoke volumes. Although you might argue Microsoft’s great day was more influential when it comes to the benchmarks than any “relief” from Powell’s “lost opportunity,” I’d still suggest his tone was unduly soft, notwithstanding the allusion to a higher terminal rate in the event the US labor market refuses to cool.

Note that the Nasdaq 100 has now re-rated to 24x. That’s a far cry from the nosebleed valuations seen during the pandemic frenzy, but it’s well in excess of where the index traded prior to 2018’s late-year tech bear market, which Morgan Stanley’s Mike Wilson famously predicted.

Notably, the index’s current multiple is also richer than pre-COVID levels, which is saying something. On the eve of the pandemic plunge, “tech bubble” warnings were becoming pervasive — little did Nasdaq naysayers know, but they hadn’t seen anything yet.

Big-tech earnings were mixed (at best) last week, and the rally now feels very speculative+. That tech shares have aggressively re-rated in the face of a still deeply inverted yield curve is perhaps ominous, particularly given the extent to which tech’s cyclical Achilles’ heel was exposed in recent quarters, when revenue growth flatlined (admittedly versus impossible prior year comps).

At the end of the day, quite a bit of this comes down to the Fed’s apparent inability to convince stocks of the whole “more work to be done” narrative, and associated talking points around the “long road” to restoring price stability.

Earlier this week, JPMorgan analysts led by Marko Kolanovic said markets seem to view central banks as “doves in hawks’ clothing” currently, a mistake if, as the bank put it, “risks are shifting in the direction of higher DM terminal rates.” Partial results from the bank’s weekly survey suggest clients agree. A combined 65% said the market’s “seemingly” dovish interpretation of the Fed wasn’t justified.

Nevertheless, clients overwhelmingly (75%) said the Fed was the most dovish of the three major central bank decisions last week. Just as importantly for this discussion, nine out of 10 clients said that based on the indicators they follow, financial conditions have eased since December (75% said “somewhat,” 15% said “significantly”).

All of this sets the market up for problems in the event the data doesn’t cooperate. Goldman on Monday noted that “towards the end of last year, equities had become very negatively correlated to labor market surprises, suggesting that labor market strength was bad news for risky assets, as it increased the risks of an extension of the hiking cycle [but] that dynamic has flipped since the start of the year.”

In the minds of investors anyway, incremental evidence of cooling wage growth has offset red-hot hiring and ongoing worker shortages. Markets appear to be buying into an almost utopian vision for the economy. That raises questions about what would happen in the event of an adverse surprise on the inflation front.

“It’s pretty hard to get a dovish message out of central bank statements of late, but that hasn’t stopped some traders from trying,” Bloomberg’s Eddie van der Walt wrote Wednesday, adding that “it’s pretty clear the reaction function in markets is geared towards pricing softer policy… which creates a massive risk of a repricing shock if a key data point — like next week’s US CPI print — tilts a rethink of the hawkish position.” He called the ongoing rally in equities “a little surreal.”