Wall Street started the new week on the downside, pressured by rising interest rates, which are approaching the 2% mark for the 10-year U.S. Treasury bond.

At 11:35 a.m. EST, the Dow Jones Industrial Average fell 458.31 to 35,775.13, following lower trading sessions across Europe.

"European markets opened cautiously on Monday, still under pressure by last week's Fed minutes release, which indicated that the expected interest-rate hikes in the U.S. are going to be earlier than expected," said Mihir Kapadia, the CEO of Sun Global Investments. "The muted start to the week is also on the back of Friday's disappointing jobs data from the U.S. – which showed significantly fewer-than-expected jobs created last month, although wages saw a strong rise."

Central banks on both sides of the Atlantic have been changing policy course in response to rising inflation, which has been running at a four-decade high, thanks to supply-side bottlenecks and labor market frictions that raise the cost of goods and services.

Higher interest rates prompt investors and professional portfolio managers to re-evaluate their asset allocation strategies, steering away from interest-rate-sensitive stocks.

Top on the list of such companies is technology companies, which trade on the promise of delivering profits at some point in the distant future. The reason is simple. Conventional valuation models use interest rates to discount future earnings to the present. The longer the expectation horizon, the higher the effect of rising interest rates on the valuation of these investments.

Most of these profitless companies trade in the tech-heavy NASDAQ. Thus, the bigger correction in the NASDAQ shares seen in recent days.

Next on the list are heavily indebted companies, seeing their cost of capital rising together with the higher interest rates.

Still, there are some winners with higher interest rates: banks. They benefit from widening the "spread," the difference between long-term and short-term interest rates, which has been growing in recent months.

A rising spread helped banks have a banner year and become the investment of choice for portfolio managers looking for investments with appreciation potential and good dividend payouts.

"U.S. bank stocks rose 35% in 2021, outperforming the S&P 500, and already started 2022 on a strong footing with the KBW Nasdaq Bank Index marking 7.28% so far," added Kapadia.

Banks are the first to kick off the current earnings reporting season, and investors and professional portfolio managers will be looking for clues to see whether the good times for the nation's financial institutions will continue in 2022.

Meanwhile, Wall Street will closely watch the U.S. Senate hearing on Federal Reserve Chairman Jerome Powell's re-appointment nomination. It could provide further clues on how the nation's central bank is planning to deal with the ballooning balance sheet, setting the pace for interest-rate hikes.

"Senators will also likely drill Chair Powell and Vice Chair nominee [Lael] Brainard on their outlooks for the Fed's balance sheet," said Deutsche Bank in a research report posted on Sunday. "In our view, quantitative tightening (QT) is likely to commence in Q3. Our baseline is that the Committee releases details on the runoff caps around the May FOMC meeting with the announcement of rundown coming shortly thereafter [our baseline is July].

"Our preliminary calculations suggest that while runoff would be $300-400bn in the second half of this year [depending on how they structure the caps], it would be around $1tn in 2023, equal to roughly two hikes in total. To be sure, there is significant debate about the impact of the Fed's massive balance sheet unwind – they've only done so once and under a meaningfully different economic and policy environment."

Any surprise from these hearings could add to market volatility in either direction.

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