A sense of calm appeared to settle over the stock market today - one day after the Dow's worst of the year. The Dow was up nearly 90 points near the close Friday.
Gold prices, pushed below $1,300 an ounce Thursday, its lowest level in some two-and-a-half years, also bounced back Friday.
Equity and commodity markets sold-off Wednesday and Thursday on worries the U.S. Federal Reserve could begin winding down its market supportive stimulus program later this year.
St. Louis Fed President James Bullard, who dissented against the FOMC meeting decision Wednesday, said in a statement Friday the central bank "should have more strongly signaled its willingness to defend its inflation target" and shouldn't have given Fed Chairman Ben Bernanke the authorization to provide an approximate timetable to end easing.
Bernanke's comments are indeed blamed for the stock market's steep two-day drop.
The Dow plunged 354 points, 2.3%, Thursday to close at a seven-week low. Over Wednesday and Thursday, the Dow shed 560 points, the blue chip index's biggest drop since November 2011. The CBOE Market Volatility Index (VIX) soared 23% Thursday, above 20 and a fresh 2013 high.
The volatile market reaction is the effect of what Money Morning Chief Investment Strategist Keith Fitz-Gerald said would happen after the FOMC meeting when on CNBC World earlier this week - the "knee-jerk reaction" from investors would push the markets down.
Volatility and a spike in volume were expected Friday as this week's end marks "quadruple witching," when index futures, index options, individual stock options and individual stock futures all expire.
With little economic news to trade on heading into the weekend, market participants appeared cautiously willing to tip-toe back into stocks after the two-day rout.
John Sawyer, chief investment officer at BBVA Compass called the equity selloff "extreme," noting any tapering of stimulus would only occur on substantial and sustainable improvement in the U.S. economy.
"Investing is not a game of "Red Light, Green Light," Sawyer told The Wall Street Journal. "It's more the speculative class that had moved the markets, not the long-term investor."
But turbulence is expected in the days ahead.
"The Fed's action represents the continuing transition that is occurring in the global economy following the financial downturn and the recovery period that has followed," Ron Florance, managing director of investment strategy at Wells Fargo Wealth Management told the USA Today. "We expect financial markets to respond with a measure of volatility as the normalization process unfolds."
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