The Dow opened 170 lower Tuesday after a hot start to the week.
Investors are resetting after a “nice two-day bounce back,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. The Dow added 410 points on Monday and 331 points on Friday to brush off a tumultuous week.
“The bounce yesterday is giving way to sellers today. Bottoms take time and can be quite frustrating,” said Ryan Detrick, senior market strategist at LPL Financial.
The National Federation of Independent Business’ optimism index rose in January, the organization announced early Tuesday. Boockvar said the report was another sign that inflationary pressures are building.
Inflation concerns investors because it could lead the Federal Reserve to hike interest rates more quickly than planned. That would make the cost of borrowing higher and would put a dent into soaring corporate profits.
Investors will be watching Wednesday’s consumer price index data closely for a pickup in inflation. On Thursday, the producer price index comes out.
“We’re looking for a pattern from different perspectives on inflation. We saw wages beginning to show traction. We’ll see if these reports also indicate that inflation is in fact gaining,” said Quincy Krosby, chief market strategist at Prudential Financial.
European markets posted mild losses in early trading on Tuesday, while the stocks fared better in Asia.
The Hong Kong and Shanghai markets were the biggest gainers, adding around 1%. Japan’s Nikkei started the day strong before sliding into the red in the afternoon, losing 0.7%.
Calm hasn’t exactly returned to Wall Street, but after six straight days of at least 500-point swings, Monday was somewhat of a respite. The VIX, Wall Street’s volatility gauge, fell 12% on Monday after spiking last week. It was down 7% early Tuesday.
So far, the Dow has recovered more than a quarter of the 2,756 points it lost between the peak on January 26 and the closing low on Thursday.
Despite the comeback on Monday, the Dow and S&P 500 remain down slightly for the year. The Nasdaq is up 1.1% in 2018.
The stock market has been taking cues from the bond market. The 10-year Treasury yield, which reflects inflation worries, is trading near a four-year high.
— Charles Riley, Sherisse Pham, Jethro Mullen and Matt Egan contributed reporting to this story.