Sharpen your investment edge: how to see reality better than the crowd

Conventional wisdom amongst investors is that rising bond yields weigh on stocks—and vice versa. But Fisher Investments Australia’s reviews of how markets function finds this is a misconception. Recognising that can benefit your portfolio. Here is how.

As Australia’s 10-year government bond yield rose from under 1% at 2021’s start to over 4% by the end of 2022, publications Fisher Investments Australia reviews indicated trouble loomed, including headlines like “Treasury Yield Spike Risks Sparking Domino Effect in Markets” and “Record-Breaking Market Frenzy Will Come to an ‘Abrupt Halt’, Experts Warn.”[i] That didn’t happen, though. In 2021, yields surged from 0.97% to 1.67%.[ii] Yet the ASX 200 gained 17.2% over the same period.[iii] Yields then more than doubled in 2022 to 4.05%.[iv] This time the ASX 200 seemingly obliged and slipped -1.1% in response.[v] But that minor decline still seems disproportionate to the supposed catastrophe some allege much higher yields cause.

So why the apparent disconnect? Despite financial commentary Fisher Investments Australia reviews that many take as gospel, bonds aren’t any “smarter” than stocks. Liquid markets price in the same information simultaneously. But bonds and stocks have different drivers—it isn’t as if bonds lead and stocks simply follow.

Understanding bond and stock fundamentals can help you analyse financial headlines rationally. For instance, one major bond driver is inflation. Since most bonds pay out fixed amounts of interest, investors are sensitive to their cash flow streams’ purchasing power over time. Higher inflation erodes that purchasing power, lowering bonds’ prices (all else equal), which move inversely to their yields. So perceptions of expected inflation over the lifetime of a bond also influence their pricing.

Of course, bond issuers’ perceived creditworthiness matters, too. Bond investors continually assess their likelihood of default—and recovery upon default. This is less of a factor for stable, developed-world issuers like Australia. But fear of default or a loss of creditworthiness can affect prices and yields, as the eurozone’s debt crisis demonstrated.

Stocks are most concerned about earnings, since share ownership represents your slice of profits. Market history Fisher Investments Australia reviews shows stocks move mostly on the gap between reality and expectations for earnings 3 to 30 months ahead. Rates aren’t a swing factor for them (rate-sensitive industries and sectors like banks and utilities notwithstanding).

So how do investors put this to work in practice? First, as a filter. When headlines scream that rising rates imperil stocks (or that falling rates will boost them), ask a few questions: How much would those interest rate changes actually affect companies’ earnings for the foreseeable future? Which rates are rising and why? And what do you know that others don’t?

If rate moves don’t materially affect earnings overall, as Fisher Investments Australia’s reviews of the theoretical relationship finds, they likely don’t move stocks much, either. For example, monetary policymakers often raise interest rates when they perceive the economy is growing and inflation is a greater risk than recession. All in all, a growing economy would be good for earnings, not bad.

The same goes with other headline events purporting vast market consequences. Information most everyone already knows confers no advantage; its surprise power is minimal, and acting on it is probably folly. Consider a headline from 2024: “Bonds Haven’t Flashed This Warning Sign at Stocks for Two Decades.”[vi] Since it was published, the ASX 200 is up 7.6% (and 10-year Australian government bond yields are flat).[vii] Heeding the headline “warning” could have been hazardous to your portfolio’s health. The same goes for more recent headlines in 2025, e.g., “Could This Flashing Warning Signal Sink the ASX 200 Rally?” and “Australian Shares Face Pressure as Bond Yields Climb.”[viii]

This gets to the second way a good grasp of market drivers can help investors: recognising false fears, which are bullish. When a popular misconception—like rates crushing stocks—rears its head, not only can you recognise that it isn’t a fundamental market driver, you also have information many others evidently don’t. Keeping tabs on prevailing sentiment helps you gauge how expectations are diverging from reality—where there is surprise power. The extent of false fear proliferation tells you how much “wall of worry” there is for stocks to climb.

The key here, according to Fisher Investments Australia, is being able to separate fundamental market drivers from sentiment-based ones. Knowing different assets’ drivers and functions is essential for portfolio management success.