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The inflation bogeyman has reared its ugly head recently and sent U.S. stock investors racing for the hills. This week, coming off one of the most volatile stretches in years, two important readings on U.S. inflation could help determine whether the stock market begins to settle or if another bout of volatility is in store.U.S. consumer prices rose 2.1 percent year-on-year in December and are forecast to stay around that pace this month.Recent U.S. tax cuts that may spur economic growth, the prospect of more government borrowing to fund a widening fiscal deficit, and rising wages have all pushed up benchmark U.S. Treasury yields to near four-year highs.The jump in wage inflation pushed yields on the benchmark 10-year U.S. Treasury note US10YT=RR closer to the 3.0 percent mark last seen four years ago, denting the attractiveness of equities and unnerving investors fearful inflation will force the U.S. Federal Reserve to raise short-term interest rates at a faster pace than is currently priced into the market.The current earnings yield for the S&P 500 index companies stands at 5.4 percent, below the 6.4 percent average of the past 20 years.The average yield on the 10-year Treasury note over the past 30 years is 4.834 percent, still well above current levels.
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