(New York)

It was an awful day for markets, with all three big indexes getting hammered, including a Nasdaq loss of 2.7% (the Russell 2000 lost over 3%). The reality is that things are likely to get worse. The inflation reading which spooked the market confirmed the worst fears of investors: that the economy may be heating up so much that the Fed will be forced to taper its support early. Every piece of data is now likely to be understood from this fearful perspective in coming weeks, which means volatility is probably going to stay quite high.

FINSUM: The market is irrationally afraid of inflation right now and has become very disconnected from fundamentals. Earnings are doing quite well and the fundamental direction of most companies is strong, including tech stocks, which are getting battered.