Mortgage rates have moved higher at the fastest pace in decades so far in 2022, but this week proved to be a refreshing exception. To understand why, we first need to examine the relationship between stocks and bonds, which is a bit more variable than most people assume. Conventional wisdom holds that stock prices and bond yields correlate with each other. This makes good logical sense from the standpoint of selling one to buy the other. For instance, if you sold bonds to buy stocks, bond yields and stock prices would both move higher together. While we often see this correlation over short time frames, the longer term trends tend to be quite different. To make matters more confusing, despite the INVERSE relationship over the longer run, there are definitely pockets of time where investors are moving money out of stocks, into bonds, and vice versa. This week hasn’t been flawless in that regard, but it has generally seen more of that conventional wisdom type of movement. As the highlighted portions of the chart point out, we can see examples of conventional wisdom and the opposite sort of movement in close proximity to one another. In other words, sometimes the orange and blue lines quickly moved in opposite directions despite mostly following each other. Generally speaking, one of the most common reasons to see stocks and bonds jump in opposite directions is Fed policy. Even though the Fed conducts monetary policy in the bond market, when the Fed’s policies are looser, the entire market tends to benefit. Conversely, when the Fed shifts toward a tighter policy stance–as has been the case on multiple occasions over the past 6 months, both stocks and bonds tend to suffer.