NEW YORK (NEW YORK TIMES) - For much of the last year, the stock market glided higher, lifted by solid economic growth and corporate profits, low interest rates and few signs of inflation.
That smooth ride might now be ending.
The Standard & Poor's 500-stock index fell 2.1 per cent on Friday (Feb 2), ending its worst week in two years. The Dow Jones industrial average tumbled more than 660 points, or about 2.5 per cent.
The catalyst for Friday's fall appeared to be a government report that showed the strong US economy might finally be translating into rising wages for US workers.
While rising pay is good for workers, it also can be a sign that inflation is coming. And investors worried it could prompt the Federal Reserve to raise interest rates faster than expected. That is unnerving for investors accustomed to the last decade's rock bottom rates.
"It's a legitimate concern, when inflation spikes up a little bit, that people should evaluate how is this going to affect profits and how is this going to affect the Fed," said Mr Jonathan Golub, chief US equity strategist at Credit Suisse.
"The market is becoming more vigilant around these concerns, and that's good and that's healthy." Even after this week's sell-off, stock markets remain at historic highs. The S&P is still 22 per cent above where it stood a year ago.
Friday's jobs report showed average hourly earnings rose 2.9 per cent in January from a year earlier, the fastest growth in years. But even before Friday's news, other financial indicators were moving in ways that suggested the end could be in sight to a prolonged period of eerily calm, happy markets.
The yield on the 10-year Treasury note - a widely used gauge for overall interest rates - rose to more than 2.8 per cent, the highest level since early 2014. Rising rates have myriad consequences, including making it more expensive for companies and individuals to borrow money.
In one sign of a shift underway, a measure of expected market turbulence, the CBOE Volatility Index, jumped by more than 15 per cent on Friday.