(Bloomberg) – As the Federal Reserve prepares to loosen its crisis stimulus, causing bond yields to recalibrate, the stock market continues to decline.

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In a tumultuous session of above-average trading volume, the S&P 500 headed for its biggest drop since May. Tech stocks – which have led the stock surge from the depths of the pandemic – have underperformed companies that are likely to benefit most from an economic recovery. The yield on 30-year Treasury bonds climbed more than 10 basis points earlier on Tuesday.

Fed Chairman Jerome Powell told the Senate that the central bank had “almost passed” the test to cut bond purchases, while the test for rate hikes is significantly higher. Powell added that inflation reflects the mismatch between supply and demand, and reiterated his view that price pressures should ease. He also noted that raising the debt limit is essential to avoid defaults.

Read: Warren says she opposes Powell for second term as Fed chairman

Treasury Secretary Janet Yellen has warned her department will be cash-strapped around October 18 unless legislative action is taken to suspend or increase the federal debt limit. She said “catastrophic” results would follow failure to meet the debt ceiling, including a “financial crisis” and recession.

The central bank is expected to let its balance sheet shrink next year as soon as it ends a bond-buying program, St. Louis Fed Chairman James Bullard told Reuters. High inflation may require more aggressive measures, including two rate hikes in 2022, he added.

US consumer confidence fell in September for a third straight month, suggesting that concerns about the delta variant and rising prices continue to weigh on sentiment. Home prices jumped 19.7% in July, once again posting the biggest jump in over 30 years.

Elsewhere, Brent wiped out gains alongside weaker broader markets after going above $ 80 a barrel. The benchmark index broke this level for the first time since October 2018, a sign that demand is exceeding supply and depleting stocks. Natural gas futures have soared in the United States amid growing fears of a tight global supply.

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House Speaker Nancy Pelosi pushes Democrats to vote this week on bipartisan infrastructure bill as President Joe Biden scrambles to negotiate a deal with Senate moderates on a bigger set of taxes and expenses.

Here are some events to watch this week:

  • Japan’s ruling party votes to elect leader on Wednesday

  • Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB forum panel on Wednesday

  • House Financial Services Committee hearing on the Fed and the Treasury’s response to the pandemic, Thursday

  • China Caixin Manufacturing PMI, Non-Manufacturing PMI, Thursday

  • Univ. of Michigan sentiment, Manufacturing ISM, US construction spending, spending / personal income, Friday

For more market analysis, read our MLIV blog.

Some of the main movements in the markets:

Actions

  • The S&P 500 fell 2% at 12:06 p.m. New York time

  • The Nasdaq 100 fell 2.7%

  • The Dow Jones Industrial Average fell 1.5%

  • The Stoxx Europe 600 is down 2.2%

  • The MSCI World index falls by 1.8%

  • Russell 2000 index fell 1.8%

Currencies

  • Bloomberg Dollar Spot Index rose 0.5%

  • The euro fell 0.1% to $ 1.1679

  • The British pound fell 1.2% to $ 1.3532

  • The Japanese yen fell 0.3% to 111.36 per dollar

Obligations

  • The yield on 10-year treasury bills rose three basis points to 1.52%

  • German 10-year rate rose two basis points to -0.20%

  • UK 10-year yield rose four basis points to 0.99%

Merchandise

  • West Texas Intermediate crude fell 0.8% to $ 74.84 a barrel

  • Gold futures fell 0.9% to $ 1,736.80 an ounce

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