LONDON – Global stock markets sank on Monday as investors waited to see whether US earnings would justify sky-high valuations, while a rally in bonds could be tested by what should be strong readings for US inflation and retail sales this week.

The S&P 500 and the Dow Jones indexes retreated from record levels on Monday. A pullback in the benchmark 10-year bond yield from 14-month highs in April eased worries about higher borrowing costs, helping richly valued technology stocks gain ground and drive the S&P 500 and the Dow to record levels.

S&P 500 earnings are expected to have jumped 25 percent in the quarter from a year ago, according to Refinitiv IBES data, the biggest quarterly gain since 2018, when tax cuts under former President Donald Trump drove a surge in profit growth. 

At 9:48 am ET the Dow Jones Industrial Average was down 42.80 points, or 0.13 percent, at 33,757.80, the S&P 500 was down 4.33 points, or 0.10 percent, at 4,124.47 and the Nasdaq Composite was down 62.12 points, or 0.45 percent, at 13,838.07.

MSCI’s All Country World Index, which tracks stocks across 49 countries, was down 0.25 percent after the start of European trading, off Friday’s record high.

European shares eased off record highs as investors held off from making big bets before earnings season. The pan-European STOXX 600 index was down 0.3 percent by 0813 GMT.

Britain’s domestically focused FTSE mid 250 index slipped 0.6 percent, but held below a record high as shops, pubs, gyms and hairdressers re-opened after three months of lockdown.

The UK’s more export-oriented FTSE 100 fell 0.9 percent, Germany’s DAX slipped 0.1 percent and France’s CAC 40 fell 0.2 percent. Italy’s FTSE MIB was the sole gainer, up 0.05 percent.

The VIX volatility index, also known as Wall Street’s “fear gauge”, ticked slightly higher to 17.44, having hit its lowest level since March 2020 on Friday.

“The drop indicates that investor sentiment is improving amid a perception of receding market risk,” strategists at BCA Research said in a note to clients. “This progress is in line with other market developments: the S&P 500 is forging all-time highs and Treasury bond yields have been climbing since August, buoyed by the improving economic outlook.”

Earlier in Asia, Tokyo’s Nikkei edged down 0.6 percent. South Korean stocks were near flat.

The Nifty 50 index slid 2.4 percent as India overtook Brazil to become the country with the second most COVID-19 cases.

Shares in Alibaba Group Holding Ltd rose 16 percent after China imposed a record 18 billion-yuan (US$2.75 billion) fine on the e-commerce giant. Over a third of the stock is held by US investors, and it makes up more than 8 percent of the MSCI EM index.

Growth and tech stocks saw something of a revival last week as US 10-year Treasury yields retreated to 1.65 percent, from a 14-month top of 1.776 percent.

Data out this week are expected to show US inflation jumped in March. Retail sales are seen surging, perhaps even with a double-digit gain. Treasury is also set to test demand with offers of US$100 billion in debt this week.

“Recent economic data from the US has reinforced the reflation narrative, with the strongest ISM Services survey since 1997 and positive signals from the labor market,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

“We also expect a pickup in European growth as vaccination programs ramp up. Still, as pent-up demand meets supply constraints, a pickup in inflation could well unsettle investors.”

US banks open first-quarter earnings season this week with Goldman Sachs, JPMorgan and Wells Fargo scheduled to report on Wednesday.

Analysts expect profits for S&P 500 firms to show a 25 percent jump from a year earlier, according to Refinitiv IBES data. That would be the strongest performance for the quarter since 2018.

The pullback in yields was enough to see the dollar come off the boil last week. It was last trading at 92.254 against a basket of currencies, down from a peak of 93.439.

It was lower against the yen at 109.39. The euro was holding at US$1.1879 and above its recent trough of US$1.1702.

Gold prices were idling at US$1,737 an ounce, having failed to sustain a top of US$1,758 last week.

Oil prices fell around 2 percent last week as production increases and renewed COVID-19 lockdowns in some countries offset optimism about a recovery in fuel demand.

Brent was 0.1 percent lower on Monday at US$62.93 a barrel. US crude fell 0.2 percent at US$59.22.