Stocks under pressure as correction fears grow and record rally defies geopolitical turmoil

A trader works on the floor of the New York Stock Exchange (NYSE) during the opening bell in New York, on May 11, 2026. Angela Weiss | Afp | Global stock markets have been on a tear in 2026, extending last year's rally as traders look through geopolitical turmoil and inflation fears. But bond markets are painting a different picture — and the growing divergence is ringing alarm bells for some investors. While many major stock indexes have erased losses incurred at the start of the Iran war, government bonds have largely taken a more cautious approach, continuing to price in higher inflation and widespread interest rate hikes. In the U.S., for example, the S&P 500 — up 7.4% year-to-date — has risen almost 7% since the conflict began in late February. The S&P 500 and the Nasdaq Composite hit new all-time highs last week, but rising bond yields have put stocks under pressure in recent days, causing both indexes to pull back from the rally. Stock Chart Icon Stock chart icon S&P 500 The bond market, however, looks far less sanguine, with the yield on the benchmark U.S. 10-year Treasury surging around 70 basis points higher over the course of the war as the value of the notes fell. Stock Chart Icon Stock chart icon U.S. 10-year Treasury That divergence is also visible in markets beyond the U.S. The MSCI World Ex USA index has clawed back a lot of its wartime losses, and is now down by around 3% from the start of the conflict. …