Anchored to the Wrong Number

Written By Connor

Hello everyone, I’m back after a brief hiatus. I had to finish the final class of my MBA program, but now I’m settling back into my weekly writing rhythm. This piece was written with Lost in the Echo by Linkin Park on repeat in the background. The song revolves around clinging to promises that have already gone hollow and learning how to move forward anyway. Strangely, that feels reflective of the market right now.

Like most investment professionals, we all check a number before we are fully awake, usually with our second or third cup of coffee already in hand. It’s the index level. The Dow. The S&P, etc. These indices are printing record highs, even as several signals beneath them pointed toward something far less comfortable.

That gap, between the number we instinctively reach for and the number that matters, is what I’ve been thinking about these past two weeks. Not because the market was unusually dramatic, although it certainly was, but because it became a real-time lesson in how easily noise gets mistaken for signal. The temptation is constant: anchor yourself to the reassuring figure, believe the narrative you want to believe, and allow the loud headline to drown out the quieter but more important warning underneath it. Markets do this all the time. Investors do too. Our responsibility is not to pretend the noise doesn’t exist, but to recognize it for what it is and remain disciplined enough to focus on the underlying signal instead.

The Story that Markets Keep Wanting to Believe

The conflict that began in late February has settled into a grinding stalemate, yet for weeks, markets have traded the idea of resolution more aggressively than any actual evidence of one. The pattern became almost mechanical: equities would fall on signs negotiations had stalled, then rally sharply on reports that a “final draft resolution” was supposedly hours away, only for those reports to dissolve days later. By Friday, May 22, even the hope of progress was enough to push the Dow more than 300 points higher to a fresh record.

What stands out to me is how every recycled rumor is continued to be treated as though it were brand-new information. At some point, that stops being analysis and starts becoming hope disguised as analysis. Investors naturally gravitate toward the narrative that allows them to remain optimistic and fully invested. The market wants peace, so it has repeatedly priced in peace long before there was evidence to justify it.

Personally, my base case remains that this conflict persists longer than markets currently expect. The sticking points in this conflict, centered around the Iranian uranium enrichment and control of the Strait of Hormuz, are not issues that can be easily resolved over a weekend negotiation. They are strategic and existential concerns for both sides. I would rather position for a prolonged grind and be pleasantly surprised by de-escalation than assume resolution is imminent and get caught leaning too aggressively into optimism. Hope may be emotionally comforting, but it is rarely a sound investment framework on its own.

The clearest evidence of this tension continues to show up at the gas pump, arguably one of the most honest sentiment indicators households encounter daily. As long as shipping through Hormuz remains vulnerable, oil carries a persistent geopolitical premium. WTI crude is continuing to be traded between roughly $98 and $108 per barrel during the last two weeks, while the national average gasoline price climbed to approximately $4.55 heading into Memorial Day, which is more than 50% above where prices stood before the conflict began. If the conflict drags on, that premium likely becomes less of a temporary spike and more of a structural reality that markets must absorb.

The Number That Didn’t Make Markets Flinch

On May 12, April’s inflation report came in hotter than expected: prices rose 0.6% for the month and 3.8% year-over-year, the highest annual reading since 2023. Even core inflation remained elevated at 2.8%, which is comfortably above the Federal Reserve’s target. Energy prices drove much of the increase, with gasoline up more than 28% year-over-year.

But the detail that struck me most barely made headlines, so I thought I would share it. Real average hourly earnings have declined by half a percent during the month. People are still working, but in real terms, they are quietly losing purchasing power. Consumer sentiment reflected that reality as well, with the University of Michigan’s sentiment index sliding into the mid-40s. Households may not follow bond markets or inflation breakdowns closely, but they absolutely feel the cumulative pressure in their everyday lives.

What fascinated me behaviorally was how quickly markets acknowledged the inflation report and then emotionally moved past it. Within days, attention shifted back toward AI momentum and geopolitical optimism. Investors are remarkably skilled at recognizing uncomfortable data and then immediately compartmentalizing it away. I sometimes notice myself doing this too. A disappointing print suddenly becomes “already priced in” almost immediately after it arrives. Sometimes that’s true. Other times, “priced in” is simply the phrase we use when we no longer want to wrestle with the implications.

The Quiet Signal Beneath the Loud One

This may have been the most important development of the entire period, yet it received far less attention than the record highs in equities: Treasury yields broke out decisively. The 10-year Treasury yield climbed to 4.657%, while the 20- and 30-year yields pushed above 5% for the first time in nearly two decades.

A stock market hitting records while long-term bond yields approach multi-decade highs feels like two entirely different narratives competing for dominance. Naturally, investors tend to focus on the more emotionally satisfying one. Equity indices are loud, familiar, and psychologically rewarding. The bond market, by comparison, communicates in a quieter language that requires more effort to interpret. Yet higher long-term rates quietly reset the valuation framework for nearly everything: housing, leveraged assets, growth equities, and long-duration cash flows. Historically, when the bond market and equity market fundamentally disagree for long enough, the bond market usually ends up being the one that forces the reconciliation. The discipline is not predicting which side is immediately right. The discipline is refusing to ignore the signal simply because another narrative feels better emotionally.

A New Face, Same Constraints

Into this environment stepped a new Federal Reserve chair. Kevin Warsh was confirmed on May 13 in one of the closest and most politically divisive votes in modern Fed history, before being sworn in today (May 22, 2026) in a White House ceremony held in the same venue once used for Alan Greenspan. The symbolism was hard to ignore. Warsh replaces Jerome Powell, though Powell will remain on the Board of Governors, which can be interpreted as a subtle but meaningful layer of institutional continuity during an increasingly uncertain economic backdrop.

What interests me most is not simply the policy transition itself, but the psychology surrounding it. Markets immediately began projecting expectations onto Warsh, particularly the belief that a new chair might usher in lower rates and a more accommodative Federal Reserve. The problem is that inflation does not care about market preferences. Warsh inherits the same constraints Powell faced: elevated inflation, stubborn pricing pressures, and a bond market that has become increasingly uncomfortable with the idea of rapid easing. Even before taking office, markets that had confidently priced in rate cuts began pulling those expectations back, with discussions of additional tightening quietly re-entering the conversation.

I believe that there is a broader lesson in this. Investors often attach hope to personalities, assuming a leadership change will naturally produce a different outcome. It is emotionally reassuring to believe someone new is in control and capable of delivering the results markets want. But institutions, especially central banks, are ultimately governed by economic reality more than individual preference. The chair may change. The pressures usually do not. The more important question is not the story markets tell about Warsh, but how he responds once policy collides with the same difficult conditions that constrained his predecessor.

The Shiny Distractions

Then came the perfect pair of stories to redirect attention away from all the heavier macroeconomic concerns. After the close on May 20, NVIDIA reported earnings that exceeded expectations, posting $1.87 per share on $81.62 billion in revenue while guiding next-quarter revenue above $90 billion. The broader AI complex immediately rallied in relief. On that same day, SpaceX publicly filed for its IPO, reportedly targeting a valuation approaching $2 trillion and a raise exceeding $75 billion, potentially the largest stock-market debut in history.

To be fair, the underlying fundamentals behind both stories are substantial. NVIDIA’s dominance within AI infrastructure is very real, and a company operating at the intersection of rockets, satellites, and artificial intelligence naturally captures investor imagination. But emotionally, these stories also offered markets a form of relief. After weeks dominated by war premiums, weakening real wages, and rising yields, growth narratives suddenly allowed investors to focus on a version of the future that still felt exciting and intact. Early speculative behavior is already visible around the SpaceX offering before shares have even been priced. In many ways, FOMO is simply another form of anchoring: when reality becomes uncomfortable, investors search for a more exciting number to focus on instead.

Here is What I’m Taking Away From It

The real lesson from these last two weeks is not necessarily a forecast. It is a question I think investors should ask themselves before checking that morning number: Am I looking at this because it is informative, or because it is comforting? The index was comforting. The peace headlines were comforting…. For now. The AI narrative was intriguing. The bond market, weakening real wages, and a conflict that still appears structurally unresolved were not, and yet those were the signals saying the most.

A few things I’ll personally be watching over the coming weeks:

  • The Strait of Hormuz, because it remains the transmission mechanism for oil, inflation, and Federal Reserve pressure.

  • The next inflation report on June 10, and whether markets dismiss another hot print as quickly as they dismissed the first.

  • The long end of the Treasury curve, particularly if it continues diverging from equity optimism.

  • Warsh’s early policy moves, separated from the narrative markets projected onto him beforehand.

  • The SpaceX IPO is not only a company event, but also a reflection of broader speculative appetite.

Markets will be closed on Monday for Memorial Day, which I feel like is an appropriate pause. Sometimes stepping back from the tape entirely is the clearest way to remember that the most visible number on the screen is not always the most important one. Often, the harder numbers are the ones most worth paying attention to.

Go have fun with your families and friends, but remember what this weekend is all about. Remember those who came before us and paid the ultimate sacrifice. Pay tribute to them, never forget them, and honor them with your future decisions. Remember, they gave everything so that we can enjoy this great experiment and enjoy the freedoms we enjoy daily.

Reflections, not advice. Just an attempt to think through the noise publicly — biases included.

References

Connor
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