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 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 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 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.
DEFENSIVE PLAYS
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 U.S. 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.
In addition, the CBOE Volatility Index is trading higher than
monthly VIX futures contracts between now and May 2015, a sign of
worry about near-term ups and downs in the market.
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"Just look at options volume versus stocks volume over the past
three to six months," said Tim Biggam, lead option strategist at
online brokerage TradingBlock.
"Options volume has been nothing but growing and stock volume has
been sort of petering out. A lot of the big players are
pre-positioning with options."
Growing worry over Europe and other overseas economies has money
managers concerned about earnings season. The next two weeks bring a
slew of U.S. corporate results, including from S&P 500 companies
with some of the highest levels of sales abroad, such as chip maker
Intel Corp <INTC.O>.
A disappointing outlook from Microchip Technology <MCHP.O> late
Thursday has put a negative spin on the chip sector's outlook. The
PHLX semiconductor index <.SOX> saw its largest daily percentage
decline since January 2009, ending down 6.9 percent on Friday. It
lost as much as 15 percent since hitting a 13-year high less than a
month ago.
Should U.S. results prove strong, however, it may stem the recent
selling.
"The earnings reports from the U.S. should help put a bottom in the
market and lead to some regained strength. We think we remain in
good shape," said Jim McDonald, chief investment strategist at
Chicago-based Northern Trust Asset Management, which has about $924
billion in assets.
(Reporting by Caroline Valetkevitch, additional reporting by Saqib
Ahmed, Chuck Mikolajczak and Rodrigo Campos; Editing by David Gaffen
and Nick Zieminski)
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