By Lewis Krauskopf

NEW YORK (Reuters) – Wild swings in stocks and a sharp run-up in government bond yields are putting the spotlight on next week’s U.S. inflation data, as investors brace for more volatility across assets.

After surprisingly solid U.S. job data, which fueled expectations for a more hawkish Federal Reserve, a turbulent week ended in the markets with a spike in Treasury yields that reached their highest point in two years.

Robust data on inflation – which hit its highest annual level in nearly four decades in December – could further bolster the case for a more aggressive Fed and extend the climb in yields, dulling the allure of an equity market struggling to rebound from last month’s tumble.

According to a Reuters poll, Thursday’s U.S. Consumer Price Index for January will be out. It is anticipated to rise 0.5% and result in an annual increase of 7.3%. This would mark the highest such rise since 1982.

“We could potentially get a very difficult number to digest next week on the inflation front and that has the potential to cut the markets off at the knees,” said Jack Ablin, chief investment officer at Cresset Capital Management.

In 2022, the benchmark U.S. Treasury Note yield, which is inversely related to the prices, climbed by about 40 basis point to more than 1.9%, as investors account for at least five Fed rate hikes this year.

While the climb has had an impact on all equities, it also contributed to steep falls in many shares of tech stocks and growth stocks. Their valuations are dependent on future profits which are less attractive as bond yields rise. To start 2018, the benchmark has fallen by 5.6%, while the tech-rich Nasdaq saw a drop of nearly 10%.

“The reason why people are hitting the reset button … is because valuations were pulled forward a lot,” said King Lip, chief strategist at Baker Avenue Asset Management. “With rising rates, the valuations just can’t be justified. These stocks are punished a lot when earnings miss a little.

The forward price-to-earnings ratio for the S&P 500 has fallen to 19.5 times from 21.7 times at the end of 2021, while the forward P/E for the S&P 500 tech sector has dropped to 24.4 from 28.5, according to Refinitiv Datastream.

Analysts believe that stocks will continue to decline before becoming attractive. Analysts Morgan Stanley (NYSE:) on Friday urged clients to sell into equity rallies as “a tightening Fed historically brings lower returns and great uncertainty for equities” and wrote that the S&P 500’s fair value is closer to 4,000. Friday’s benchmark index increased 0.5%, to 4,500.

Many are now questioning whether growth stocks, which led the market higher for many years, are losing leadership to “value stocks”, comparatively cheaper stocks that can do well in rising rates or an inflationary environment.

The S&P 500 value index, replete with shares of energy firms, financial companies and other economically sensitive names, had declined 1.4% so far this year as of Thursday, versus a 10.2% drop for its S&P 500 growth counterpart. This disparity is close to the largest annual performance of value over growth since 20 years.

John Lynch (NYSE: Wealth Management), chief investment officer at Comerica (NYSE) said that market rates are rising slowly and is causing investors “to reassess” and to consider near-term profitability as well as the value of cyclical trade.

Markets were also digesting high-profile earnings reports. Google parent Alphabet Inc (NASDAQ) and Amazon.com Inc(NASDAQ:) shares rose after each quarter’s reports, while Meta Platforms Inc, a megacap peer, plummeted after its dour outlook.

Reports from Walt are due next week Disney (NYSE) Co, Coca-Cola Twitter Inc Nvidia Corp (NASDAQ:) will be reporting the next week.

Investors warned that any reports being disappointed, especially by companies with high valuations, could lead to severe market fallsout.

“It’s been a volatile start to the year with investors swinging between concerns over Federal Reserve tightening and confidence in the economic recovery,” Art Hogan, chief market strategist at National Securities, said in a research note. Meta aside, the solid earnings outlook helps to lessen the uncertainty.