The U.S. stock market can’t seem to make up its mind.
After plunging 1.5 percent on Oct. 7 and rallying almost 1.8 percent on Wednesday, the Standard & Poor’s 500 Index dropped 2.1 percent at close in New York on Thursday, the biggest turnaround in almost three years. As investors weigh the prospect of slower economic growth overseas against the benefit of U.S. interest rates staying near zero, a measure of 10-day volatility has risen to the highest level since April, data compiled by Bloomberg show.
Equities slumped on Thursday amid concern over Europe’s economy, erasing Wednesday’s rally, which came after minutes from the Federal Reserve’s last meeting suggested monetary policy may remain accommodative if the global economy falters. The measure is 4.1 percent below its all-time closing high of 2,011.36 reached Sept. 18 as investors assess concerns from valuations to oil prices and growth in Europe.
“A lot of folks are finding gains difficult to come by so they’re keeping positions, long or short, on a tight leash,” Jordan Irving, co-founder of Conshohocken, Pennsylvania-based Irving Magee Investment Management, said in a phone interview. The firm manages $220 million in assets. “The huge fear is deflation. The U.S. could have inflation creeping in here and there, but the rest of world’s deflation can snuff that out and that’s the concern.”
The S&P 500 extended losses on Thursday after European Central Bank President Mario Draghi said there are signs the euro-area’s economic growth is slowing and policy makers must lift inflation from an “excessively low” level.
Stocks on Wednesday staged their best rally this year as a record of the Sept. 16-17 Federal Open Market Committee meeting showed a number of Fed officials said the U.S. expansion “might be slower than they expected if foreign economic growth came in weaker than anticipated.”
The move in stocks was a reversal from the previous day, when the S&P 500 slumped 1.5 percent after the International Monetary Fund cut economic-growth forecasts and warned of “frothy” equities. The Chicago Board Options Exchange Volatility Index is up 37 percent this year to 18.76.