Global markets are in turmoil, and there's no reason to expect investor angst to ease any time soon.
On little more than a hint from European Central Bank chief Mario Draghi that leaders must do more to help the euro zone's troubled economy, stocks were bloodied Thursday as the S&P 500 plunged 40.68 points, or more than 2 per cent, to mark the sharpest decline in six months.
Global stocks continued to sink on Friday with losses in both Asia and Europe. U.S. stock-index futures declined. Brent crude futures fell below $90 a barrel, to their lowest since 2010.
These days, the slightest puff of good or bad news is enough to send stocks on a wild ride as investors can't decide which way to turn.
And concerns about the deteriorating global economy, shifting central bank policy and high stock valuations are likely to keep investors' nerves taut for the foreseeable future.
In six of the past 11 trading sessions, the benchmark index has zigzagged by 1 per cent or more, putting it 4.1 per cent below its record high in mid-September.
For Canada's S&P/TSX composite index, the magnitude of the decline is the bigger story: The index has fallen a total of 7.2 per cent from its record high in September.
It fell 205.87 points or 1.4 per cent on Thursday, to 14,460.60.
To be sure, any pickup in volatility can look remarkable after three years without a correction of 10 per cent or more, in the case of the S&P 500.
"It's been so long, people have forgotten what a correction actually looks like – and that they are both normal and healthy phases as the froth gets cleared out," said David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, in a note.
The U.S. economy is the world's only source of significant strength. Gross domestic product rose 4.6 per cent in the second quarter, at an annualized pace, while the unemployment rate retreated to a six-year low of 5.9 per cent in September.
Elsewhere, though, disappointing economic news is piling up to the point where the United States could feel some pain.
Germany reported this week that industrial production slumped 4 per cent in August, raising the threat of recession in the euro zone's biggest economy.
While looser monetary policy once seemed a natural response to any economic setback, Mr. Draghi of the ECB warned that low interest rates and similar measures aren't enough by themselves to lift the euro zone out of its gloom.
In Japan, observers are losing confidence in the effectiveness of the country's economic reforms. And in China, there are worries that the economy will fail to meet its growth target of 7.5 per cent this year – a target that is already well off growth of previous years.
The deteriorating global picture prompted the International Monetary Fund to lower its forecasts this week. It now sees the global economy expanding just 3.3 per cent this year and 3.8 per cent in 2015, down from previous forecasts of 3.4 per cent and 4 per cent, respectively.
Investors are focused on every utterance from the U.S. Federal Reserve as they anticipate a shift in the central bank's monetary policy. The Fed has been winding down its bond-buying program throughout 2014, and many observers believe that interest rate increases come next – perhaps as soon as mid-2015.
However, the weaker global economy, low inflation and strong U.S. dollar are throwing off the predictions and heightening uncertainty about the Fed's move.
While stocks rallied on Wednesday after the minutes from the last policy meeting suggested that the Fed was in no rush to raise rates, Thursday's slump erased those gains and more.
This suggests that, for now, fears about the global economy are stronger than confidence in central banks.
Against this backdrop is the persistent worry that stocks have risen too far, too fast over the past five-and-a-half years, stretching their valuations to the point where they become highly sensitive to disappointing news.
The S&P 500 traded at more than 18 times reported earnings at its peak in September, well above the long-term average of 16 times earnings.
As companies start to report their third-quarter results, investors are going to learn if the high valuations are justified by rising earnings and upbeat forecasts.
It's a tough call. "In the near term, we expect the stronger [U.S.] dollar will lead to a disappointing quarter for revenues and increased negative earnings guidance," said Amanda Sneider, a strategist at Goldman Sachs, in a note.
She thinks that U.S. stocks with mostly domestic exposure are better positioned amid uncertainty about the global economy.
But investors showed little interest in discerning one stock from another during Thursday's rout: 96 per cent of stocks in the S&P 500 fell.