Whipsaw Market Sends Halloween Chill

Stocks gave back their gains and then some Friday after investors backed away from a one-day jump on solid GDP growth numbers yesterday.

As the U.S. dollar jumped in value, investors parsed the Thursday results from the Commerce Department and weighed the effects of government spending on the 3.5% jump for September, sending major indexes down slightly at the market open. The Dollar Index rose almost 0.66%, and the CBOE Volatility index hit a 3-month high, climbing nearly 25% in one day.  

The Dow Jones Industrial Average closed down 250 points to 9713. The Nasdaq shed 52 points to 2045 and the S&P 500 also dropped 30 to close at 1036. The Dow closed the month flat, and it was the first down month for the Nasdaq since February.

The whipsaw back down came a day after a government report of better-than-expected economic growth sent stocks soaring with the biggest gains in more than three months. Thursday's surge snapped a slump earlier in the week.

The volatile end of the week, coupled with a pending meeting of the Federal Reserve Open Markets Committee, which sets interest rates, heightened uncertainty at the Friday close. But other investors said the spate of triple-digit swings are simply a reflection of the jerky nature of the recovery. 

"The market doesn’t have a brain and it’s hard to predict what’s going to happen with something that doesn’t have a brain," said Frank Ingarra, a co-portfolio manager at Hennessy Funds.

The data released Friday morning showed consumer spending last month decreased by 0.5%, the largest since December 2008, when the recession was at its worst. Economists surveyed by Dow Jones Newswires had forecast income held steady during September and spending fell 0.5%.

The price index for personal consumption expenditures excluding food and energy, year over year, rose 1.3%. The year-over-year gain in August was also 1.3%. The Federal Reserve watches this core PCE index closely for signs of inflation pressures. Fed officials define their statutory goal of price stability as inflation of 1.5% to 2%.

Other reports Friday showed U.S. labor costs continued to stagnate in the third quarter as a tough job market keeps workers from commanding bigger salaries and more benefits. The employment cost index crept upward 0.4% in the latest quarter, mirroring its second quarter increase, the Labor Department said in a report Friday. Analysts surveyed by Dow Jones had expected the index would climb 0.5%.

Senate leaders have reached a compromise measure to extend the $8,000 tax credit for first-time home buyers, and will add a $6,500 credit for move-up buyers.

Oil prices slipped as the dollar rose in value against other currencies. As of 4:03 p.m., front-month crude futures traded on the Nymex were down $2.88 at $76.99.

Dow Jones Newswires contributed to this report.