Investors have stepped up bets that the Federal Reserve and other major central banks will tighten monetary policy in the coming months, withdrawing a pillar of support for markets. Mounting expectations of interest-rate rises follow evidence that the drivers of inflation have broadened beyond the supply-chain shock that fueled price gains for much of 2021.
Recent volatility is “really all about inflation and how aggressive central banks are going to be to counteract it,” said Brian O’Reilly, head of market strategy at Mediolanum Asset Management, adding that inflation could also curtail economic growth by knocking consumption. “Certainly, the market is nervous at the moment,” he said.
As a result, many investors have backed away from what was one of the hottest areas of the market: tech. The Nasdaq Composite is down 8% this year, a much sharper decline than the S&P and Dow.