The Market is Lying to You (And Why I'm not Panicking)

Something deeply weird is happening in markets right now, and I think most retail investors are misreading it.

Let me lay out the situation plainly.

Following a hotter-than-expected inflation report in mid-May, market pricing took virtually any chance of a Fed rate cut off the table between now and end-2027. More strikingly, traders in the fed funds futures market are now pricing in an interest rate increase as soon as December, with a March 2027 hike carrying better than 71% probability.

So rates going up. Got it.

Now here's the punchline: over the past month, the Nasdaq surged nearly 15%, the S&P gained almost 10%, and the Dow added over 6%. Year-to-date, the Nasdaq is up nearly 40%.

Stocks. Going. Up.

How does a market that's pricing in rate hikes simultaneously make new all-time highs? This feels like it shouldn't be allowed. 

And yet, here we are.

What's actually happening

Fed rate expectations have reversed from pricing 2–3 cuts three months ago to now expecting hikes totalling roughly 30 basis points through 2027, driven by sticky inflation from oil tariffs and AI cycle demand, alongside resilient equity valuations.

The culprit is the Iran war. Elevated energy prices from the conflict have kept inflation above the Fed's 2% target, with headline PCE accelerating to 3.5% in March 2026, up from 2.8% in February. BofA has now pushed its rate-cut forecast all the way to July 2027.

But AI spending and corporate earnings are strong enough that equity markets are, for now, shrugging all of this off. The rally is being driven primarily by artificial intelligence infrastructure spending and surprisingly resilient corporate earnings.

So we have two narratives colliding: rates going higher for longer vs AI-driven growth is unstoppable. Markets, for now, are betting on the second one.

What this means for us Singaporean investors

Here's where it gets personal.

In 2025, S-REITs benefited from the sharp decline in 3-month SORA as the Fed cut rates. But the recent shift towards a slower pace of rate cuts — and now potential hikes — has started to weigh on sentiment. S-REITs and property stocks have pulled back as investors reassess how long borrowing costs may stay elevated.

For those of us holding S-REITs, this environment is uncomfortable but not catastrophic. Let me tell you why.

First, around 75% of Singapore REIT debt is on fixed rates or hedged through floating-to-fixed interest rate swaps. The damage from rate spikes is partially insulated. REITs aren't as naked to rate moves as you might fear.

Second, the selloff creates opportunity. Analysts expect refinancing of REIT loans expiring in 2026–2027 to see up to 200 basis points in savings, and project up to a 40 bps increase in sector yield, pushing headline yields back towards the 6% level — spreads that investors were historically happy to re-enter.

Third, and this is the nuance people miss: Singapore banks — DBS, OCBC, UOB — are currently guiding for broadly stable income in 2026. The key risk to watch is a sharper-than-expected global slowdown, especially if oil prices stay elevated, which could raise non-performing loans. But banks actually benefit from higher rates on the NIM side, so the portfolio balance between banks and REITs matters here.

My honest take

The market is in a paradox that won't last forever. Either:

Inflation stays hot → the Fed hikes → equities eventually reprice lower → REITs stay under pressure but their yields become genuinely attractive

Growth slows from high oil prices → inflation falls → the Fed cuts again → REITs rally, tech pauses

Neither scenario is an emergency. Both are navigable.

What I'm not doing: panic selling my REIT positions just because the macro headline is scary. What I am doing: being patient with new capital deployment, collecting distributions, and using this volatility to sell cash-secured puts on names I'd happily own at lower prices anyway.

The market is loudly broadcasting contradictory signals. The right response isn't to shout back. It's to have a plan, stick to it, and collect your dividends in the meantime.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It's crucial to conduct your own research or consult with a qualified financial advisor before making any investment decisions.

Thanks for reading.

With love and peace, 

Qiongster