Volatility has suddenly returned to U.S. stocks, and for the first time all year it doesn't appear that the weakness in equities will go away quietly in the span of a few days.
While the S&P 500 is still up 3.1 percent for the year, the index is off about 5 percent from its record high reached in mid-September, and closed out this week at the lowest level since May 23.
"We're still in a bull market, but in the near term things are a little bit dicey, and I don't think the decline is over with yet," said Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida. The S&P also posted back-to-back intraday moves of more than 40 points this week for the first time in three years. Wall Street's fear gauge, the CBOE Volatility Index .VIX, ended at 21.24 on Friday, its highest level since early February.
Investors said they were concerned about the eventual end of Federal Reserve stimulus, as well as weak growth overseas and its potential effect on U.S. earnings. The slide in oil prices has also served as a harbinger for poor demand, and investors in general got caught betting heavily on further market gains at a time when this stew boiled over.
The volatility recalls the last major period of big market gyrations in the second half of 2011, when the first-ever credit downgrade of the United States and the threat of a debt default kept investors on their toes for several months. It is unclear whether the current turmoil will last as long.
"What is interesting about what is going on is that you have several themes all feeding into the same action, and that action is to mitigate risk," said Peter Kenny, chief market strategist of Clearpool Group in New York.
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