(Bloomberg) -- Stocks ticked lower on Tuesday as the second-quarter rally met resistance from economic headwinds and signs that positioning is overbought.

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The chemical industry led declines in Europe after Lanxess AG slumped as much as 18% on a profit warning, dragging shares of peers including BASF SE lower. US contracts declined after Wall Street was shut for a holiday Monday.

Investors caught between fear of missing out and concerns markets have run too far, too fast are contending with overblown valuations and economic headwinds. Bullish positioning in US equity futures grew last week, taking it to the most extended levels for the S&P 500 and Nasdaq 100 in data going back to 2010, according to Citigroup strategists.

The path of US monetary policy is another wild card. Federal Reserve Chair Jerome Powell will give his semi-annual report to Congress on Wednesday. Policymakers at the Fed kept interest rates unchanged at their latest meeting but warned of more tightening ahead. Investors also await the outcome of policy meetings in Turkey, the UK and Switzerland.

Mike Riddell, global macro portfolio manager at Allianz Global Investors, warned the full economic impact of the Fed’s aggressive rate increases has yet to come.

“It feels like people are worried, but they’re not actually positioned that way,” Riddell said. “The vast majority of all the rate hikes in this cycle have not yet had any effect. But they will hit, and hit hard.”

The Fed decision last week came with forecasts for higher borrowing costs of 5.6% in 2023, implying two additional quarter-point rate hikes or one half-point increase before the end of the year.

That contrasts with market pricing for some 20 basis points of tightening in the remainder of the year.

“We find it hard to get on board with the current excitement,” Morgan Stanley strategists led by Michael Wilson wrote in a note Tuesday. “If second half growth re-accelerates as expected, then the bullish narrative being used to support equity prices will be proven correct. If not, many investors may be in for a rude awakening.”

Meanwhile, US Treasuries erased early losses to trade flat. European government bonds rallied across the board, with the sharpest gains for UK gilts and Swiss notes.

An index of Asia-Pacific shares slumped amid anxiety about Chinese growth and the lack of fresh stimulus from Beijing. Alibaba Group Holding Ltd. whipsawed before trading about 1.5% lower following the surprise replacement of its chief executive and chairman.

Key events this week:

• US housing starts, Tuesday

• Federal Reserve Bank of St. Louis President James Bullard speaks, Tuesday

• New York Fed President John Williams speaks, Tuesday

• Federal Reserve Chair Jerome Powell delivers semi-annual congressional testimony before the House Financial Services Committee, Wednesday

• Federal Reserve Bank of Chicago President Austan Goolsbee speaks, Wednesday

• Eurozone consumer confidence, Thursday

• Rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday

• US Conference Board leading index, initial jobless claims, current account, existing home sales, Thursday

• Federal Reserve Chair Jerome Powell delivers semi-annual testimony to Congress before the Senate Banking Committee, Thursday

• Cleveland Fed’s Loretta Mester speaks, Thursday

• Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday

• Japan CPI, Friday

• US S&P Global Manufacturing PMI, Friday

• Federal Reserve Bank of St. Louis President James Bullard speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.3% as of 7:06 a.m. New York time

• Nasdaq 100 futures fell 0.3%

• Futures on the Dow Jones Industrial Average fell 0.3%

• The Stoxx Europe 600 fell 0.3%

• The MSCI World index fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0931

• The British pound fell 0.2% to $1.2763

• The Japanese yen rose 0.4% to 141.44 per dollar

Cryptocurrencies

• Bitcoin rose 0.2% to $26,766.81

• Ether fell 0.1% to $1,728.26

Bonds

• The yield on 10-year Treasuries was little changed at 3.77%

• Germany’s 10-year yield declined five basis points to 2.46%

• Britain’s 10-year yield declined 12 basis points to 4.37%

Commodities

• West Texas Intermediate crude rose 0.4% to $72.09 a barrel

• Gold futures fell 0.4% to $1,963.70 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Brett Miller.

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