If you’re still perplexed over how stocks can be so strong when the Fed remains committed to ending the free money era as fast as possible, you really only need to look across Wall Street to the bond market.

Yes, stocks have weathered a tough season. The NASDAQ has bounced 12% in the last few weeks but remains 13% away from its bull market peak.

The S&P 500, on the other hand, is now barely 6% from record territory. That’s far from the end of the world. It isn’t even in the 10% correction zone . . . even in an era of rising interest rates.

There’s no puzzle here. On Wall Street, every dollar coming in needs to be allocated somewhere.

If it accumulates, it’s generally a sign that fund managers have run out of ideas. We don’t need to pay them to hold a lot of cash. We can do that on our own.

So that money needs to be invested. For most managers, the strategic options are limited to stocks, bonds and a little bit of “cash,” which is actually short-term Treasury debt that pays a little interest.

The bond market is vast. And it’s now in its worst period since we started keeping records around three decades ago.

Far from being “safe,” Treasury prices are down about 11% in the last few months. Yes, that’s a little worse than how they performed in the 2008 crash.

For bond investors, that’s a nightmare decline. Now factor in the fact that these fixed-income securities will pay at most 2% a year back in interest and you’ll see why money is flowing out of the Treasury market.

It’s not a crisis of confidence in the U.S. government. It’s pure math. When you’re unlikely to get a better exit in the future, you cut your losses.

And then you roll your capital into something that can generate enough profit to recover those losses and get back to work creating wealth. You need an entry.

Perfect entry points aren’t common. Most investors, even the professionals, need to settle for “OK” entry points a lot more often that some people think.

We want to remain fully invested in the best places we can find, constantly weighing risk against potential returns given the prices available. It’s not perfect. It’s good enough.

Right now, stocks are far from perfect, but they’re better than bonds. And with over $20 trillion parked in the declining Treasury market, even a slight pivot out of bonds into stocks adds up to real money.

Every 1% that flows from the Treasury market is $200 billion. Even if it simply moves indiscriminately to S&P index funds, that’s enough to move the market up about a half percentage point.

With the Treasury market down 11% in the last few months, a lot of money is on the move. I suspect it accounts for about 4 percentage points of recent upside.

There’s room for more. Treasury yields still have about 40% to climb before they even hit their post-2008 pre-COVID peak. Doing the math, that’s enough money on the move to swell the S&P 500 by another 6-7 percentage points.

At that point, the market is back in full bull mode. I’m not saying that stocks are a fantastic opportunity here. I’m only saying they’re a better place than bonds.

Forget about cash. Unless you’re earning 7% a year on your money markets, you’re parked in a depreciating asset class.

There’s $5 trillion in money markets. In an inflationary world, it has to go somewhere.

Then there’s $1.5 trillion sitting on the balance sheets of S&P 500 companies, losing purchasing power every day inflation remains fierce. It needs to go somewhere.

Warren Buffett has finally started holding his nose and buying companies again. They may not be perfect, but they’re better than watching his cash rot.

When he finds something better, he can rotate. But for now, the right stocks are the best option available.

Remember when Buffett finally gave in to pressure and started buying tech stocks? One of the best decisions he’s made i the past decade.