Earlier this week, Wall Street’s most prominent bear suggested the recent spike in bond volatility and an increase in the general level of uncertainty around the Fed’s rate path were the “most significant developments” in the macro universe.

Evidence of US economic resilience and labor market strength combined with hawkish Fed speak drove short-end US yields to new cycle highs last week, while 10s reclaimed a four-handle and pricing for the July FOMC meeting continued to suggest a hike is all but certain later this month. Although the BLS report underwhelmed on the headline, the balance of last week’s data, which included an anomalously robust read on private sector hiring from ADP, nodded emphatically in the direction of a still-hot economy. Notwithstanding the eight-month manufacturing malaise and all “labor market as a lagging indicator” caveats aside, the US economy may need more “convincing” if the Fed truly wants to engineer below-trend growth.

And, so, market participants are once again faced with a situation that likely seems unusual to a generation of investors raised to conceptualize of bonds as a docile asset class that everywhere and always acts as a diversifier and vol suppressant in multi-asset portfolios. The ratio of the MOVE to the VIX has drifted higher, and spiked in and around the scorching ADP report and ISM services beat, as shown below.

I don’t love that comparison, by the way, but it has informational value. It’s a useful visual cue. Consider it “for illustrative purposes only.”

As Morgan Stanley’s Mike Wilson wrote Monday, stocks’ capacity to ignore relative tumult in rates becomes more limited the higher equity multiples go. Conceptually, anyway.

If you think US equities are “priced to perfection” at nearly 20x, then a disorderly rise in rates (which is to say a “sloppy” bond selloff) is perilous.

To the extent any extension of the bond selloff is led by reals, that’s even more worrisome for an equity market that’s re-rated aggressively.

Of course, rates and the Fed aren’t the only things stocks have to worry about. Positioning is now broadly (if not extremely) bullish, and that applies across investor cohorts — from discretionary to systematics, from “pros” to individuals. Sentiment is no longer a contrarian “buy” signal.

At the same time, Q2 reporting season is being pitched as make or break for a “profit reckoning” bear case at the end of its shelf life. Either corporates guide lower than consensus and trough EPS growth gets pushed out, or the C-suite sticks to a relatively benign outlook and Q2 marks the nadir for what’ll be remembered as a shallow earnings recession. If it’s the former (i.e., if it becomes apparent that we’re not out of the woods yet), then the juxtaposition between flagging profits and a hawkish Fed will be thrown into stark relief.

As Barclays’ Emmanuel Cau wrote, Q2 earnings will be mixed, so it all comes down to guidance. If management doesn’t disappoint too badly on the outlook, equities can keep drifting higher over the summer, according to Barclays. If guidance does disappoint in aggregate, that’ll be problematic.

This is why it’s so important that the inflation picture continues to improve and that the US labor market shows signs of loosening. That’s the macro conjuncture than can prevent another rates shock.