When it comes to the Federal Reserve's looming interest rate hiking cycle, speed of movement should be top of mind among investors that will have to navigate the evolving liquidity backdrop with precision.
"I think it's the speed at which the Fed will have to move [on rates] that probably defines market behavior, not in a broad sense but in terms of leadership," said Charles Schwab chief investment strategist Liz Ann Sonders on Yahoo Finance Live.
The Consumer Price Index (CPI) reading out on Wednesday underscores why the Fed may have to increase interest rates as soon as March, which may trigger more pressure on the stock market.
The Bureau of Labor Statistics' December CPI reading showed prices rose at a 7.0% year-over-year clip at the end of 2021, marking the fastest increase since 1982. This matched economist estimates, and accelerated from November's already elevated 6.8% increase.
"Today’s report continues a trend of inflation prints that reside at multi-decade highs over the near-term, and we do not expect to see any letup for a few months, but some improvement in inflation rates may be expected as spring/summer approach," said Rick Rieder, BlackRock's global investment officer of fixed income.
Stocks were volatile in the wake of the data with the Dow Jones Industrial Average giving up gains by afternoon trading.
But concerns on the Fed moving quicker than expected to lift rates to fight off inflation has dominated the market narrative to kick off 2022. Goldman Sachs just this week raised its 2022 rate increase expectations to four times from three times.
The Nasdaq Composite is down 3% on the year — driven lower by weakness in high multiple software names — as traders bake in less robust returns in a land of higher rates.
For Schwab's Sonders, she isn't ruling out the market seeing "rotational corrections" throughout the year given the uncertainty on the pace of Fed rate increases.
"If you go back to the post World War 2 era and look at every hiking cycle - when the Fed was moving quickly versus slow cycles where they might take a break for a meeting or two - there is a huge difference in terms of how the market behaved in a slow cycle," Sonders explained. "I think these bouts of volatility — some leadership shifts that can happen really quickly — I think that is likely to stay with us at least in the first half of this year."
Yahoo Finance's Emily McCormick contributed to this story.