Stocks are gyrating like an acrobat, reflecting the mixed readings on the U.S. economy, concerns over the strengthening U.S. dollar and uncertainty about the timing of interest rate hikes by the Federal Reserve.
The "colossal amount of volatility is tied to, but not exclusively so, to the strength in the U.S. dollar," Jim Russell, portfolio manager at Bahl & Gaynor, told CBS MoneyWatch. "Some of this week's volatility in the market place is tied to uncertainty over the Fed."
The next policy statement from the Federal Open Market Committee, the central bank's rate-setting panel, comes on Wednesday, with investors and economists hoping for signals on whether the Fed plans to raise borrowing costs in June or later in the year. "There are credible arguments on both sides," Russell said.
"The Fed has two mandates 0ne is the labor market, and it's cranking. The other metric is not cranking, which is inflation," said Phil Orlando, equity market strategist at Federated Investors, which has just revised down its estimate of first-quarter economic growth to 2.3 percent, from 3 percent.
The main factors weakening the economy, in Orlando's view, include the harsh winter weather, questions over the timing of the Fed's liftoff, a slowdown in manufacturing and consumers mostly pocketing their savings from cheaper gas. The rising value of the dollar against other currencies is also weighing on U.S. exports, denting growth.
Although Fed policy makers are looking for evidence that inflation will rise toward their 2 percent goal as they ponder hiking rates for the first time since 2006, the latest data still point to the subdued demand that has dogged the economy since the housing crash. Wholesale prices in February fell for a fourth straight month, as food and energy costs eased. The dollar's climb, which has lowered the price of imports, is also helping keep a lid on inflation.
"Commodity movements are going to be a function of where the dollar goes. If the dollar is strong, prices go down -- it's that direct. The dollar is strong today and oil is down. That relationship still holds," Russell said.
By contrast, the surging labor market could spur an earlier rate hike by the Fed, with the U.S. economy creating 295,000 jobs in February and the jobless rate declining to 5.5 percent, the lowest in nearly seven years.
The economic climate has more than just investors on shaky footing, with optimism about the economy taking a hit amid a bounce back in gasoline prices and lowered wage expectations.
The University of Michigan's preliminary gauge of consumer sentiment, released Friday, had confidence falling in March to a four-month low. Consumers are feeling less optimistic, as cold weather increased utility costs, gas prices rose from a near six-year low in January and wage growth remains weak.
"The renewed concerns expressed by lower- and middle-income households mainly involved income declines and higher utility costs, as well as disruptions to shopping and businesses due to the harsh winter," Richard Curtin, director of the Michigan Survey of Consumers, said in a statement. "Among those with incomes in the top third, strong gains were concentrated in the near-term outlook for the economy and buying plans."
Still, Curtin thinks the recent dip in confidence will be temporary, and he expects consumer spending to help drive growth later this year.
The S&P 500 (SPX) notched its third straight weekly decline, losing 12 points on Friday to end at 2,053. Investor's frayed nerves were illustrated by the Dow's triple-digit moves -- both up and down -- in four out of the last five days, with the blue chip index closing out the week with a drop of 146 points, or 0.8 percent, to 17,749.
"This week's volatility is a precursor and indicator of the uncertainty around where the Fed comes down on Wednesday. I think you'll be able to hear a pin drop," Russell said.