U.S. stocks closed their most turbulent week in years with a sharp swing higher, temporarily stemming the bleeding in the market but doing little to quell investors’ fears of a prolonged downturn ahead.

Major U.S. indexes ended the week more than 5% lower, their worst loss in more than two years. Investors described the volatility as a shock after more than a year of tranquility in markets.

The Dow Jones Industrial Average—which rallied 330 points, or 1.4% Friday—had swung at least 1,000 points in all but one day this week and changed direction a total of 53 times.

After dropping more than 3% on Monday and Thursday, the Dow and S&P 500 entered correction territory—a fall of more than 10% from their highs two weeks ago.

“It feels like I’ve been shelled all week by artillery,” said Michael Antonelli, equity sales trader at Baird. On his trading floor in Milwaukee, Wis., he said stress levels among traders were high and few people were able to get up to go to the bathroom, let alone grab lunch, because of the market volatility.


The week’s turbulence was especially unsettling given that there was no obvious cause for the frequent lurches. Even the traditional relationship between stocks and bonds, where investors seek a safe haven in times of trouble, materialized on some days but was absent on others.

“It is very tricky to find anything that would make sense for why equity markets are so nervous aside from the fact that we have come quite a long way,” said Nandini Ramakrishnan, global market strategist at J.P. Morgan Asset & Wealth Management.

That was a sharp contrast with the last notable bout of market instability, in January and February 2016, when investors were able to point to a crash in the price of oil and fears about the Chinese economy.

Today, investors have no easy answer to the question, “Why?” And that makes it less likely the bout of instability will come to a quick end.


“There’s enough confusion .. that I think this is going to go on for a little while,” said Ian Winer, head of equities trading at Wedbush Securities.

Adding to investors’ anxiety, the current upheaval follows a placid time in markets for most of 2017 and early 2018. Stocks for the most part steadily marched higher in a quiet market.

It was so quiet, that many investors said they wished for a stock-market swoon that would offer the opportunity to buy more shares at lower prices. Now, with that opportunity at hand, many would-be opportunists stayed on the sidelines this week or headed for the exits.

Investors, for example, withdrew a record $30.6 billion from EPFR-tracked equity funds in the first week of February.


Stash, an app that enables individuals to start buying shares of exchange-traded funds with as little as $5, sent a push alert earlier this week to users’ cellphones warning them that while markets go down, “it’s never a reason to panic.”

The closing numbers Thursday at the New York Stock Exchange. Photo: bryan r. smith/Agence France-Presse/Getty Images

The Dow’s 5.2% drop for the week marked its steepest decline since the week ended Jan. 8, 2016. The index lost 1,330 points for the week and is trading near late November’s levels. The S&P 500 and Nasdaq Composite also suffered their worst weeks since January 2016 and February 2016, respectively.

In Friday’s action, the S&P 500 rose 38.55 points, or 1.5%, to 2619.55, and the Nasdaq Composite added 97.33 points, or 1.4%, to 6874.49.

Trading volume for the week was the highest since August 2011 when Standard & Poor’s stripped the U.S. of its triple-A credit rating during the debt-ceiling crisis.


For the second straight session, stocks made their biggest moves in the final half-hour of the trading day, a sign of traders’ lack of conviction as to where stocks are headed. The Dow dropped more than 400 points in the last 30 minutes of Thursday’s session and added nearly 230 points over the same period Friday.

The swift selloff highlights the precariousness of stock markets in recent months, as many investors made big bets on low inflation and assumed solid corporate profits could keep shares afloat, even as stock prices were historically expensive.

“The whole world has been betting on there being no inflation,” said Richard Bernstein, chief investment officer at Richard Bernstein Advisors. In recent months, he said he listened to investors say markets would remain calm forever, and he watched them make bets to that effect.

Late last week, signs of increasing inflation sparked the beginning of stocks’ tumble. The turmoil caught some investors off guard after Wall Street’s fear gauge doubled at the beginning of the week, clobbering exchange-traded products that investors had used to bet on the continued stability of stock prices.

“You had the entire world mispositioned,” Mr. Bernstein said.

On Monday, the Cboe Volatility Index rose sharply, spreading pain to investors who bought products betting against stock-market swings. Mr. Bernstein said he expects investors who made similar bets on a lack of volatility and inflation to also be hurt in coming weeks.

This recent selloff has been broad-based across equity sectors and regions, sending indexes in Europe and Asia into correction territory, as well.

The Stoxx Europe 600 fell 1.4% Friday, ending the week down 5% at its lowest close since August. Benchmarks in Japan, Hong Kong and Shanghai were off 2% to 4% on the day and roughly 8% to 10% on the week.

Many investors say the pullback in stocks was overdue, and that even though they expect further declines, they don’t foresee an economic recession in the near future.

Earnings in the U.S. continue to beat Wall Street’s’ expectations, and many investors and analysts cite that as a reason the rout can’t go on much longer.

“The stock market is not the economy, so it can have a panic attack and it doesn’t mean a recession is on its way,” Baird’s Mr. Antonelli said. The economy doesn’t feel like it is entering a recession, he added, noting this should be what investors focus on, “because recessions are what end bull markets.”

Read More

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Streetwise: A Historical Tie Breaks but Trouble Still Lurks

—Lucy Craymer contributed to this article

Write to Corrie Driebusch at corrie.driebusch@wsj.com and Riva Gold at riva.gold@wsj.com

Corrections & Amplifications

The Cboe Volatility Index rose sharply on Feb. 5, spreading pain to investors who bought products betting against stock-market swings. An earlier version of this article incorrectly said the index declined sharply. (Feb. 12, 2018)