Investors shaken as reversals ignite volatility

David Wolf, a fund manager at Fidelity Investments in Toronto, says equity spasms such as those that shook global stocks this week scare professionals as much as everyone else.

“My dad has been quite panicky,” Wolf said of his father, Bernard, a retired economics professor from Canada’s Schulich School of Business. “He knows what markets are all about and he knows what the economy is all about, and even he gets scared” when stocks rise and fall this fast.

One of the most volatile five days for stocks since the financial crisis ended yesterday with the Standard & Poor’s 500 Index rallying 1.3 percent to 1,886.76. That pared the decline since Oct. 10 to 1 percent and handed investors a fourth consecutive weekly retreat. The benchmark index slumped as much as 3 percent on Oct. 15 before recovering in the biggest swing since 2011.

Stocks slid, recovered and lurched again as concerns mounted that Europe will slip into a recession just as Federal Reserve bond buying ends. Speculation that Ebola is spreading, concern about the health of the global economy and selling by hedge funds sent the Chicago Board Options Exchange Volatility Index above 26 on Oct. 15, a two-year high.

Earnings season got under way with Netflix Inc. tumbling 21 percent for the week after a price increase slowed subscriber growth. JPMorgan Chase & Co. slid 4 percent, the most since August, after net income fell short of forecasts.

The Dow Jones Industrial Average retreated 163.69 points, or 1 percent, to 16,380.41. The Nasdaq Composite Index lost 0.4 percent.

Wolf, part of Fidelity’s global asset allocation team, said the firm has been getting more calls from clients worried about the market’s losses. Very little about the outlook for the North American economy has changed, he said, adding that the drop is a buying opportunity not seen in months.

While Canada’s S&P/TSX Composite Index was essentially unchanged for the week, the index had two days of losses of about 1 percent and then reversed with two days of approximate 1 percent gains.

“This was a really spectacular week to watch,” Herbert Perus, who helps oversee $36 billion as head of equities at Raiffeisen Capital Management in Vienna, said in a phone interview. “A lot of risks came into the minds of short-term orientated traders.”

Stocks favored by professional speculators saw some of the biggest swings. The 20 stocks in the Russell 1000 Index (RIY) in which hedge funds hold the biggest stakes have tumbled 8.4 percent since the beginning of October, twice the rate of the full index.

Small-cap stocks staged the biggest rally since June as investors began to regain confidence. After sliding 13 percent from March 4 to Oct. 13, the Russell 2000 Index rebounded with three days of gains exceeding 1 percent. The index ended the week up 2.8 percent.

The S&P 500 is still down 6.2 percent from a record a month ago. Pressure is mounting for European Central Bank stimulus such as government-bond purchases as the 18-nation euro area struggles to rebound from a sovereign debt crisis and subsequent austerity measures.

Speculation that central banks will step in to support the economy fueled gains at the end of the week. The ECB will start “within the next days” to purchase assets in the new program to support the economy, Benoit Coeure, an executive board member, said on Oct. 17. St. Louis Fed Bank President James Bullard said the previous day that policy makers should consider delaying the end of bond buying.

Robert Stimpson, a fund manager in the Ohio town visited by an Ebola-infected nurse, said his conversations have been dominated by concern over the disease. Transportation shares were whipsawed by speculation the spread of Ebola will hurt travel plans, with the Bloomberg U.S. Airlines Index losing more than 6 percent on Oct. 13. The gauge finished the week up 4.2 percent.

Chimerix Inc., a drug maker working on a treatment for Ebola, had a weekly gain of 10 percent. Lakeland Industries Inc., a manufacturer of disposable protective gear with a market value below $100 million, slid 14 percent. The stock has doubled in the past month.

“The market got to a position where it was prone to weakness and it happened to occur at the same time that scary news such as Ebola was rolling out,” Stimpson, who works at Oak Associates Ltd. in Akron, Ohio, said by phone. “It’s a confluence of factors coming together to lead to a very difficult two weeks in the market.”-Bloomberg