Something is breaking in financial markets — Here’s what’s behind the sell-off

That cracking sound in financial markets isn’t the typical kind of break, where one asset class or another fractures and gives way. Instead, this is more a break in a narrative, one that has widespread repercussions.

The narrative in question is the one where the Federal Reserve holds interest rates low and everyone on Wall Street gets to enjoy the fruits.

That’s changing.

In its place comes a story in which rates are going to stay higher for longer, an idea Fed officials have tried to get the market to accept and which investors are only now beginning to absorb.

The pain of recognition was acute for Wall Street on Tuesday, with major averages down sharply across the board and Treasury yields surging to their highest levels in some 16 years.

“When you have an economy predicated on zero rates, this fast move [by the 10-year Treasury yield] towards 5%, the calculus has to change, because the ramifications are going to change,” said Quincy Krosby, chief global strategist at LPL Financial. “The cost of capital is going up, companies are going to have to refinance at a higher rate.”

The surge in rates is especially ominous as corporate America heads to third-quarter earnings reporting season, which is right around the corner.

“All of this has to be assimilated and digested by the market,” Krosby added. “You can see that it’s troubling and it’s difficult.”

There were signs early Tuesday that it could be another tough day for a market just coming off a brutal September.

But the carnage really got going following the 10 a.m. ET release of a Labor Department report showing that job openings took a sudden swing higher in August, countering the prevailing wisdom that the employment picture was loosening and thus putting less upward pressure on wages.

In turn, traders grew worried that the Fed would be forced to keep monetary…