With the ferocious spread of Covid-19’s delta variant and central banks already talking about tighter monetary policy to bring inflation under control, there’s a growing sense of worry that financial markets have become too optimistic.

The shift in narrative was evident across assets on Monday. S&P 500 futures lost 1% and small-caps took a beating. In Europe, the main stock benchmark sank more than 2% with the most severe losses in energy, banks and travel companies. Treasuries rallied, with the 10-year yield sliding to 1.23%.

“Peak growth is starting to become a more concerning element,” Frank Benzimra, head of Asia equity strategy at Societe Generale SA, said on Bloomberg Television. “This is actually one of the elements which has pushed us to reduce the allocation into risk assets in our global allocation. You have inflation, but you have also this growth element.”

In the minds of many investors, the moves represent a pullback in overextended areas of the market, like cyclicals. Others pointed to the usual volatility that comes with earnings season and thin summer trading.

Investors had earlier delighted in the prospect of a strong worldwide economic rebound fueled by easy money and vaccine rollouts. But the combination of price pressures and soaring infection rates raises the risk that growth could fall short of rosy forecasts. And with global equities teetering at all-time highs, there’s no room for error.

“While macro conditions remain overall supportive for equities, valuations, seasonal trends and positioning leave the room for price corrections and volatility spikes as the one we are seeing today,” said Antonio Cavarero, head of investments at Generali Insurance Asset Management.

Other strategists urged clients to use the weakness as a time to buy.

“I am firmly in the buy the dip camp,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “Stocks had a very strong first half supported by the earnings recovery and we expect corporate earnings to remain strong.”

For Ruchir Sharma, head of emerging markets and chief global strategist at Morgan Stanley Investment Management, there’s still a worry that growth expectations are too high. China’s regulatory crackdown on its technology sector and U.S. consumers saving more than they spend are among the key risks, he said.

Global Growth Boom May Disappoint, Morgan Stanley’s Sharma Warns

Stalling vaccination rates, especially in the U.S., are also dragging down market sentiment, wrote Deutsche Bank AG’s George Saravelos. At the same time, rising prices have caused consumer demand to stall in many economies.

“This is part of broader post-Covid scarring; it is also part of bottleneck demand destruction,” he wrote. “This is the opposite of what one would expect if the environment was genuinely inflationary. It shows the global economy has a very low speed limit.”