Investors were beginning to look around and question whether stocks really should be at such high levels.
And so we need to be aware of the risks - but we shouldn't let those risks scare us away from markets. This can be partly explained by the fact that growth outside the United States has picked up nicely, with higher interest rates to follow eventually.
The Dow Jones Industrial Average fell 409.33 points, or 1.6 per cent, to 25,111.63, the S&P 500 lost 38.45 points, or 1.39 per cent, to 2,723.68 and the Nasdaq Composite dropped 72.23 points, or 1 per cent, to 7,168.72. The BEER ratio (bond yield/equity yield) now stands at 1.85, suggesting that equities are overvalued.
US stock index futures extended their losses on Monday, with the Dow futures falling over 300 points, as bond yields continued to rise.
What is making bond yields rise?
Investors in utility and real estate stocks - and indeed all dividend-paying equity sectors - should, however, recognize the threat that further increases in bond yields would present to future portfolio returns. A higher fiscal deficit leads to a spike in government borrowings, especially when government's revenue generation has been sluggish.
The drop amounted to 4.6% - the biggest decline since August 2011, during the European debt crisis. But too much inflation is unsafe. And that chair's approach to monetary policy - including how quickly to raise rates in any particular environment - is a bit of a mystery. And that, moreover, they recognize that the market is not the same thing as the economy.
Rising rates have myriad consequences, including making it more expensive for companies and individuals to borrow money, like for buying a home or a auto.
Nor is the Fed alone in adjusting policy - the European Central Bank has reduced its monthly asset-purchase target and hasn't decided whether to extend buying after September.
That would be negative for emerging markets and commodity currencies, said Ruskin.
Friday's US payrolls report showed wages growing at their fastest pace in more than eight years, fuelling concerns that both inflation and interest rates would rise faster than expected.
Equity markets are suffering some competition in terms of investors for the first time in many weeks, he said. Although a welcome development for workers, economists often view rising wages as an early indication of inflationary pressure. This is because rising inflation could prompt the Fed to be more aggressive on raising interest rates - indicating more expensive credit that could slow consumer and spending. For every increment in the oil price, breakeven inflation has risen less in recent months than it did in the past.
Of late Brent crude prices have been rising and brokerages like Goldman Sachs project the prices to top $80 a barrel in six months. Janet Yellen, who just stepped down as Fed chief, told PBS on Friday that she still believes "asset valuations generally are elevated". Alternatively, it can leave itself at the mercy of the bond market vigilantes who must be expected to come out of the woodwork at the first sign that inflation is picking up. To (over) simplify, today's value of future earnings goes down as interest rates go up, and the risk-free payout of a bond in, say, a year, becomes more competitive. "It will raise the chances of the Fed median dots shifting up to 4 rate hikes for 2018", he added. That augurs for a gradual and limited rise in interest rates, rather than a disruptive change.
Yields on the bellwether 10-year Treasury rose to 2.86% this morning.
Average hourly earnings for USA workers were 2.9 percent higher in January than the previous year, the fastest annual increase in years. "Equity nervousness seems to be about repricing for higher yields and tighter Fed policy".
So if you still think a 10 per cent long-term capital gains tax is what is hurting Dalal Street?
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