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Investors Gird for Scarier Days in Markets
World Economy

Investors Gird for Scarier Days in Markets

Volatility has suddenly returned to US 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, Reuters said.

“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 500 and Nasdaq posted their biggest weekly declines since May 2012, and the Dow Jones industrial average ended Friday in negative territory for the year.

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 US 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.

 Instability

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.

The only S&P 500 sectors to gain since the market’s Sept. 18 high are defensive – utilities and consumer staples. This week also saw the biggest weekly inflow on record to US taxable bond funds, while nearly $7 billion left stock funds.

One sign that investors anticipate more volatility has been in the options market, where volumes have increased sharply. Friday marked the busiest day in the options market since June 2013, with options volume totaling 27.2 million contracts, according to options analytics firm Trade Alert.

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