Recently, US stock and bond markets have surged in tandem, but beneath this seemingly unified performance lies starkly different judgments about economic prospects: the bond market is pricing in "job market slowdown" while the stock market is wagering on "economic acceleration."

On Monday, September 8, US Treasury yields declined across the curve, with long-term bonds showing particularly strong performance, pushing 30-year Treasury yields into negative territory for the year and sending 10-year yields to five-month lows. Meanwhile, in equity markets, the Nasdaq touched intraday record highs before pulling back but still closed higher, with technology giants providing primary support. This stock-bond rally pattern emerged ahead of this week's critical employment data revisions, inflation reports, and Federal Reserve meeting, with US market trading remaining relatively light.

This "stock-bond rally" is not based on unified optimistic expectations. Tony Pasquariello, head of hedge fund coverage at Goldman Sachs, explicitly highlighted this divergence in a client report, stating that "bond and equity markets are anchoring to different economic narratives for pricing," signaling market disagreement over employment and economic growth prospects.

**Bond Market Prices in "Job Market Slowdown"**

The bond market narrative is more straightforward, focusing on signs of US economic cooling. Monday's Treasury yield decline, particularly the significant retreat in long-term yields, reflects growing investor conviction that economic slowdown will prompt the Federal Reserve to adopt more accommodative monetary policy.

Pasquariello's analysis uses charts to vividly illustrate this logic. He noted that 5-year US Treasury yield movements are highly correlated with Bloomberg's US Labor Market Surprise Index. This means that whenever employment data disappoints expectations, bond yields tend to decline. Currently, the bond market is "primarily focused on domestic labor market slowdown" and therefore "pricing in a more aggressive Fed."

Meanwhile, market expectations for rate cuts are intensifying, providing support for bond prices. As investors prepare for this week's employment data revisions and inflation data releases, the bond market's pricing logic clearly points to a "bad news is good news" pattern: the weaker the economic data, the greater the likelihood and magnitude of Fed rate cuts.

**Stock Market Bets on "Economic Acceleration"**

Unlike the bond market's caution, the equity market appears to be looking past current economic turbulence toward a brighter future. Although US major indices struggled near the flat line on Monday, the resilience of large technology stocks and some cyclical stocks suggests investors are not panicking over economic slowdown signals.

Pasquariello believes the stock market is "looking ahead to a cyclical acceleration," with this confidence partly stemming from "supportive monetary and fiscal policy." Data shows that mid-cap index movements correlate with Bloomberg's US Survey Data and Business Cycle Indicator Surprise Index, indicating equity markets are more sensitive to long-term economic sentiment.

Goldman's trading desk has also observed that long-only investors are actively buying technology stocks, while funds have continuously flowed into non-tech cyclical stocks in recent months. This suggests investors are voting with their wallets, betting that the economy will recover under policy stimulus.

This divergence extends beyond stock and bond markets. On Monday, gold prices soared above $2,600 per ounce, reaching record highs, while the dollar index weakened to its lowest close since July 25.

These cross-asset movements further highlight investor uncertainty about future paths and multiple bets ahead of key economic inflection points. Over the next two weeks, the US will release a series of heavyweight data including CPI figures, non-farm payroll revisions, and Fed rate decisions.

**Risks and Consensus**

Although stock and bond market narratives appear contradictory, Goldman's report offers a reconciling perspective. Pasquariello's colleagues note that markets currently price in approximately 1.7% GDP growth over the next four quarters, not far from Goldman economists' 1.5% forecast. Meanwhile, rate markets are pricing in five cuts from September through next June, which is "completely aligned" with Goldman economists' expectations.

From this perspective, stock and bond market pricing may not be entirely contradictory: bond markets are pricing current economic slowdown and necessary policy easing, while stock markets are pricing the eventual outcome of successful policy-driven economic recovery.

"I've been in this market long enough to respect the signals from the rates market. I've also been around long enough to believe in the equity market's discounting ability. Simply put, bonds are smart... so are stocks. However, sometimes the signals from the two markets seem to diverge—and now is one of those times, so it's worth exploring why," he said.

However, risks remain. Pasquariello, citing Goldman strategist Ben Snyder's views, warns that since markets have heavily priced in rate cut expectations, if equity markets truly begin worrying about growth prospects, significant downside could open up. Conversely, if the labor market unexpectedly strengthens, bond prices already at elevated levels will face correction risks.