The stock rally needed the bond selloff to abate. And it did, however transient the reprieve might prove.

Benchmark US borrowing costs ended the week a handful of basis points lower versus the previous Friday. And the long bond, yields on which briefly eclipsed the October 2023 highs to reach levels last seen in 2007, managed to stabilize.

On the heels of its worst week since the “Liberation Day” panic, the popular duration ETF notched a decent enough gain, clearing the way for equities to post an eighth consecutive advance.

But many fear this is far from over, “this” being a war-related squeeze higher in developed market bond yields, as illustrated simply, but poignantly, below.

The chart’s from SocGen’s Albert Edwards. “Nothing to see here… just a bond market meltdown,” he wrote, recycling a quote from 2007. “Each cycle is different, but could the current bond rout trigger another equity market collapse?” he wondered.

The answer’s a qualified “yes.” Anything “could” happen, after all. The S&P, for example, could revisit the March 2009 lows (666), as Edwards repeatedly suggested for a decade and a half post-GFC.

But, and depending on your definition of “collapse,” I doubt we’re on the cusp of a US equity selloff that’ll break any records. Not while corporate profits are growing briskly, not in the era of the Fed “put” and not on the watch of a US president whose vanity’s tied up in the stock market.

However (and I should probably put that in all-caps, but italics will suffice), it’s certainly the case that equities reached their near-term breaking point with bond yields last week. I said as much repeatedly.

And, panning out to a 30,000-foot view, it’s also the case that recent events are yet another attestation to the notion that the world, and with it, the macro regime, shifted in the 2020s. I’ve returned again and again to that notion, most pointedly in “Normal Is War,” published in September of 2022.

I often revisit that linked article and quote extensively from it, and I’ll do so again here on the way to setting up a chart. To wit:

The pandemic, and then, a ground war in Europe, together shattered a three-decade period of relative macro stability, upending what too many market participants came to regard as unassailable “truths,” including the notion that inflation in developed economies was destined to remain moribund in perpetuity.

Relatedly, bedrock risk-management principles, including the purportedly “foundational” negative correlation between equities and bonds, were exposed as ephemeral manifestations of an anomalous peace.

It’s imperative we consider the possibility, as disconcerting as it most assuredly is, that in fact, nothing has changed. That “The Great Moderation” was no epoch. Perhaps the great macro peace was merely an interlude.

It’s possible — likely, even — that we forgot what normal actually is. Normal is volatility. Normal is rancor. Normal is war.

Fast forward to 2026, and we’re in the middle of another war and it’s manifesting in rekindled inflation and the threat of an unanchored long-end across developed market bond curves.

The read-across for asset allocations and portfolio strategy is disconcerting: The correlation’s dead. Or dying. It was, as I described it in 2022, an “ephemeral manifestation of an anomalous peace.”

The figure below shows the three-month rolling correlation of US equity and Treasury returns. Simply put: The war with Iran has produced the most positive relationship since 1999.

Although “The Great Moderation” dates to the late-1980s, the 60/40 religion which grew out of the “new normal” macro regime reached its apogee post-2000, as the stock-bond correlation moved, and stayed, negative.

“Prior to the pandemic, a ‘risk-on, risk-off’ relationship was the norm between stocks and bonds; the correlation between the two asset classes was negative in 86% of trading days between 2000-2019,” BMO’s Ian Lyngen wrote, in his weekly. “Until we see clear resolution on the Strait of Hormuz, it’s difficult to imagine this correlation reversing anytime soon.”

Personally — and this may be a bit of an exaggeration, but it depends on one’s age — I doubt that sacred correlation’s going to “reverse” sustainably in our lifetimes.

While we’ll surely go through stretches where stock and bond returns are negatively correlated again, prompting financial media headlines declaring the “return of 60/40” (a religious renaissance), I doubt such periods will prove sustainable or persist with anything like the regularity we were accustomed to from 2000-2019.

We’ve lost our religion, I’m afraid.