February has been one of the market's most volatile months in recent memory as investors grapple with the end of smooth sailing for the nine-year bull market. Toward the beginning of the month, a sell-off was sparked by data from the Department of Labor showing wages up their faster pace in nine years. Last week, the Dow Jones and S&P 500 made a major comeback. 

Yet with uncertainty looming, on Tuesday, stocks took another tumble. Disappointing earnings from Walmart Inc. (WMT) resulted in the stock's worst day in three decades, bond yields spiked nearly 3% to a four-year high and the Dow closed down more than 250 points. This week, the Treasury Department plans to auction off $258 billion of debt to help pay for tax cuts and increased spending. (See also: 5 Stocks to Outperform in 2018’s Volatile Market.)

In response to the sell-off, one team of analysts on the Street says the negative impact of higher bond yields has only just started to materialize. "Appetizer, not the main course," wrote London-based Morgan Stanley strategists, describing the correction of late January to early February. 

'Late Stages of a Late-Cycle Environment'

Andrew Sheets, the chief cross-asset strategist at the bank, suggests that developed markets "remain in the late stages of a late-cycle environment." He highlighted rising equities, rising inflation, tightening monetary policy, higher commodity prices and a spike in volatility as signaling "a pretty normal pattern" if the firm's view is correct. As investors worry over rising inflation, with the Labor Department reporting the U.S. Consumer Price Index (CPI) up 0.5 last month, along with tightening monetary policy from the Federal Reserve, fears could start to overshadow strong earnings results. 

"Earnings reported so far have beaten estimates by about 5% in the U.S.," said Sheets. "Things get trickier after the first quarter." After March, he indicates that markets will need to "digest" rising core inflation and declining purchase manager indexes (PMIs), economic surprises and (quite possibly) earnings revisions." (See also: Expect More Global Volatility: GS, Bridgewater.)