After falling for a fourth day in a row on Friday, the stock market suffered its worst week in nearly two years, and so far in January the S&P 500 is off to its worst start since 2016.
The bond market is also in disarray, with rates rising sharply and bond prices, which move in the opposite direction, falling.
As the worst economic ravages of the pandemic appear to be waning, at least for now, the Fed is ushering in a return to higher interest rates.
This could be a good thing if it beats back inflation without derailing the economic recovery.
5, Mr. Yardeni said, when Fed officials released the minutes of their December policymaking meeting, revealing that they were on the verge of embracing a much tighter monetary policy.
Financial markets now expect the Fed to raise its key interest rate at least three times this year and to start to shrink its balance sheet as soon as this spring.
The S&P 500 information technology sector, which includes Apple and Microsoft, has risen 54 percent on an annualized basis since the market’s pandemic-induced trough in March 2020.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today.
Where is inflation headed? Officials say they do not yet see evidence that rapid inflation is turning into a permanent feature of the economic landscape, even as prices rise very quickly.
Consumer companies like Kraft Heinz and Campbell Soup lagged the explosive share price growth of tech stocks earlier in the pandemic, but they have been gaining ground in this new environment.
The stock market, overall, has also lost some of its buoyancy for reasons other than monetary policy.
But the current losses could be beneficial if they let a little air out of a potential bubble, without bursting investor portfolios.
And the prospects for corporate earnings remain good.