U.S. equity markets sold off over the course of the week despite (or perhaps because of) upbeat economic data. In response to continued signals of stronger economic growth, and with it the expectation for rising inflation, the 10-Year Treasury yield rose to its highest level since January 2014. Rising rates were singled out as the primary culprit for the selloff. The selling was capped on Friday by the S&P 500’s largest single-day decline since September 2016. For the week, the S&P 500 fell –3.9%, its largest weekly decline since January 2016.

Given the much-discussed lack of volatility in 2017, the pullback probably felt worse than it actually was. However, a little perspective is warranted. At the end of Friday, the S&P 500 was back to where it was on January 11, just three weeks ago. More importantly, nothing fundamental changed with the economy or the markets over the past week. Economic data remains upbeat and earnings continue to show solid growth. What did change, however, was investors’ perspective on how those two factors might influence global monetary policy along with interest rates and inflation moving forward. With Friday’s strong wage growth data and the attendant concerns about higher inflation, the markets are suddenly viewing “good” news as “bad.”

Through Friday, 50% of companies within the S&P 500 had reported earnings. To date, 75% of those companies have beaten their earnings estimate. Earnings growth for the quarter is currently forecasted to be 13.4%. As strong as earnings have been, sales have been even better, with 80% of companies beating their estimate. According to FactSet, if that remains unchanged, it would mark the highest percentage of companies reporting positive sales surprises since FactSet began tracking the metric in 3Q08.