Stocks rebounded Friday, clawing back some of the week's steep losses, but the turbulent trading of the last few days left no doubt that the relative calm the markets enjoyed all summer has been shattered.
Major U.S. indexes ended the week down about 4%, their biggest weekly loss in six months. An index measuring the performance of small-company stocks had its worst week since early 2016.
This wasn’t the first time extreme market volatility added some turmoil to five of the quietest years in equities that investors have ever seen.
In February, the Dow tumbled more than 1,000 points on two separate days, not long after the massive GOP tax cuts took effect. Those tax cuts raised growth expectations but also raised the prospect of higher interest rates — a lingering fear that contributed to this week’s tumult.
Then stocks around the world plunged in late March after President Trump decided to apply tariffs on some imports from China — the first skirmishes in a trade fight that has since become what appears to be prolonged trench warfare.
So when the market swung wildly again this week, the conclusion was clear for many: Market volatility is part of the new normal, and it’s probably here to stay.
That perception is reflected in the Cboe Volatility Index, or VIX, a benchmark for equity turbulence derived from options prices. It has averaged 15.2 in 2018, up 37% from 2017.
“It’s intense. Look at the sell-off that happened yesterday afternoon. I was looking at my screen and was like, ‘Really?”’ said Donald Selkin, chief market strategist at Newbridge Securities in New York. “In February, there was a catalyst to blame. This time, it’s a structural shift.”
Stocks declined for six straight sessions before rebounding on Friday, the longest streak since before Trump was elected president. Unhappy about the direction of the stock market this week, Trump stepped up his criticism of the Federal Reserve, which has been steadily raising short-term interest rates to stem inflation.
Big technology and consumer-focused companies led the recovery Friday. Longtime favorites of many investors, they had dropped in the last few days.
A major factor cited by market watchers for the pullback was the sharp increase in long-term interest rates. Those rates are not set by the Fed, and high ones can slow the economy and make bonds more attractive to investors relative to stocks.
Yields on 10-year Treasury notes peaked at almost 3.26% this week, the highest in seven years.
Apple climbed 3.6% to $222.11, and Microsoft gained 3.5% to $109.57. Amazon jumped 4% to $1,788.41. Those are the three most valuable companies in the United States, and they had suffered startling declines the last few days: On Wednesday, each took its biggest loss in more than two years. That made for a dramatic end to three months of calm on the U.S. market.
The Standard & Poor’s 500 index rose 38.76 points, or 1.4%, to 2,767.13, ending a six-day losing streak. The benchmark index tumbled 4.1% this week, and it's down 5.6% from its Sept. 20 record high.
Thanks in part to the tech firms’ big gains, the Nasdaq composite jumped 167.83 points, or 2.3%, to 7,496.89 on Friday.
The Dow Jones industrial average rose as much as 414 points early in the day, then gave it all up and turned slightly lower. It rebounded and finished with a gain of 287.16 points, or 1.1%, at 25,339.99.
The market's recent skid started last week, when strong economic data and positive comments from Federal Reserve Chairman Jerome Powell helped set off a wave of selling in the bond market as investors bet that the U.S. economy would keep growing at a healthy pace. That pushed down bond prices and sent yields up to seven-year highs.
That drove interest rates sharply higher, which worried stock investors who felt that a big rise could stifle economic growth. The big swings in the market Friday suggest those fears haven't gone away. The VIX hit 26.83 on Thursday and closed the week at 21.31, well above its year-to-date average.
“What seems to have driven this is a fear interest rates were going to rise more quickly because the Fed was being too aggressive or the economy was going to overheat,” said David Kelly, chief global strategist for JPMorgan Funds. Kelly said he doesn't think either of those fears is justified, as the Fed isn't raising interest rates that rapidly and economic growth hasn't sped up recently.
Small companies didn't fare as well. The Russell 2000 index rose just 1.30 points, or 0.1%, to 1,546.68 on Friday; it notched its largest one-week loss since January 2016.
High-dividend stocks such as utilities and real estate investment trusts also rose less than the overall market. They held up relatively well over the last few days. Investors view them as relatively safe, steady assets that look better when growth is uncertain and the rest of the market is in turmoil.
U.S. automakers Ford and General Motors continued to slump. GM fell 1.6% to $31.79, its lowest in almost two years. Ford, trading at its lowest in almost nine years, slid 1.9% to $8.64. Both have sunk this year as they deal with slowing sales and the Trump administration's tariffs on steel and aluminum, which are sending their manufacturing costs higher.
The automakers’ stocks have fallen further in recent days following reports that Ford might cut jobs. In late September, Ford Chief Executive Jim Hackett said the steel and aluminum duties would cost the company $1 billion through 2019.
Investors are also growing more concerned that the U.S.-China trade war is impairing global economic growth. The International Monetary Fund cut its forecast for global economic growth this week because of trade tensions and increased interest rates.
Sam Stovall, chief investment strategist for CFRA, said he thought that stocks fell too far but that there could be more turmoil ahead for the markets. While stocks had done well despite the rising trade tensions between China and the United States, investors seem more worried now.
“Everybody has been pretty much dismissing the effect of the trade war on U.S. equities, and now they're beginning to think, ‘Wait a minute, maybe there could be a problem,’” he said. “I don't think the reasons for the decline have been resolved.”
Bond prices edged down. The yield on the 10-year Treasury note rose to 3.15% from 3.13%. At the beginning of the year it stood at 2.46%.
U.S. crude oil rose 0.5% to $71.34 a barrel in New York. Brent crude, the international standard, ticked up 0.2% to $80.43 a barrel in London.
Wholesale gasoline rose 0.5% to $1.94 a gallon. Heating oil fell 0.5% to $2.32 a gallon. Natural gas slid 1.9% to $3.16 per 1,000 cubic feet.
Asian stocks rebounded. European stocks finished mostly lower.
After a big jump Thursday, gold fell 0.5% to $1,222 an ounce. Silver rose 0.2% to $14.64 an ounce. Copper slipped 0.1% to $2.80 a pound.
The dollar slipped to 112.01 yen from 111.94 yen. The euro fell to $1.1563 from $1.1594.
Bloomberg was used in compiling this report.