Stocks smell a Fed pivot, bonds not so much

• Tuesday's 3.1% gain for the benchmark index was the best of the year. (Twitter's 22% gain helped — but stocks were up across the board.)

The big picture: The atrocious performance this year of both stocks and bonds has been driven almost entirely by the Fed's effort to raise rates to tamp down inflation.

• In recent weeks, as inflation reports have continued to arrive too high, Fed chair Jerome Powell has doubled down on the central bank's commitment to keep hiking — even acknowledging that it will likely generate economic pain.

Between the lines: Stock market investors seem to think that potential pain — and afterward, a pivot away from rate hikes — could come sooner than they thought even a few days ago.

The reasons: New data shows the U.S. jobs engine may be starting to sputter. Openings in August collapsed by more than 1 million.

• Manufacturing is also slowing fast.
• Other central banks may be easing up on rate hikes — Australia just hiked by less than expected.
• And financial strains — like the U.K.'s rate shock that hammered pensions, or persistent market doubts about the health of Credit Suisse — are emerging.

Yes, but: The bond market doesn't share the stock market's conviction that we're near the end of the rate-hiking cycle. If it did, we'd see yields on Treasury bonds falling more sharply.

What we're watching: For confirmation that this is just another bear market rally, the type of periodic upswing — like the one we saw over the summer — that can take hold from time to time despite the broader downward trajectory that defines a bear market.

• If we don't get confirmation from Fed officials that they think they're getting inflation under control, expect this rally to peter out, too.