Investors are increasingly shifting away from long-duration assets as rising inflation expectations and uncertainty reshape market dynamics. The latest UMich Consumer Sentiment Survey indicates the highest long-term inflation expectations since 2008, prompting a move towards higher long-term Treasury yields. This shift suggests a demand for greater compensation for future inflation risks, making equities less attractive as the discount rate for future cash flows increases. The increase in real yields and the term premium indicates that markets are bracing for tighter future monetary policy, further reducing the appeal of risk assets. This environment of heightened inflation concerns and tighter monetary expectations is contributing to a significant sell-off in equities.
The SPDR Portfolio S&P 500 ETF (SPLG) experienced a decline, dropping 1.24% to $68.47 at 3:00 PM on Friday, January 10.