Investors are increasingly shifting away from long-duration assets due to rising inflation expectations and uncertainty in the market. This sentiment is driven by the realization that the era of low inflation and zero interest rates, which has supported a bull market since 2009, may be coming to an end. The latest UMich Consumer Sentiment Survey indicates the highest long-term inflation expectations since 2008, prompting higher long-term Treasury yields as investors demand greater compensation for future inflation risks. As a result, equities are becoming less attractive, with higher discount rates for future cash flows potentially leading to lower stock valuations. The increase in real yields and term premiums suggests markets are preparing for tighter future monetary policy, further diminishing the appeal of risk assets.
The Vanguard S&P 500 ETF (VOO) experienced a decline, dropping 1.28% to $535.21 at 3:00 PM on Friday, January 10.