People are seen on Wall St. outside the NYSE in New York
People are seen on Wall St. outside the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2021. Reuters

Anyone hoping for calmer waters in markets this month is being badly disappointed, as turmoil in UK government bonds, surging oil prices and now another hot U.S. inflation reading ramp up volatility and create a perilous environment for investors.

Thursday's trading brought more eye-popping market gyrations, as a higher-than-expected U.S. inflation report sent the S&P 500 to its lowest point since November 2020 early in the session only to see stocks rip higher by mid-day, a swing of over 5 percentage points in total. The index was up 2.5% in afternoon trading.

Despite the upside move, "this sort of volatility makes markets feel a lot less rational and undermines confidence," said Michael Farr, CEO of Farr, Miller and Washington LLC. "This is unnerving for longer-term investors."

Farr believes the sharp rally may have been caused by short-covering, or bearish investors taking profits on their bets against stocks.

Others believe investors may have taken heart from evidence that inflation may have peaked - a narrative that has burned market participants this year, as consumer prices have stayed high despite a barrage of Fed hikes.

"Maybe the biggest thing is the peak inflation story was reinforced with this report, which didn't show inflation getting worse, and that was enough for investors to start buying stocks," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

To be sure, more of the move in U.S. stocks has been to the downside this year, with the S&P 500 clocking the most days of being down at least 1% already this year since 2009, in its 23% year-to-date decline.

GRAPHIC-A year of stock market swoons -

Indeed, despite the S&P 500's wild ride on Thursday, the most recent inflation data does little to help the case for battered stock market bulls.

Traders are now pricing in a fourth straight jumbo 75 basis point increase from the Fed at its Nov. 1-2 meeting, while also factoring in about a 9% chance that the central bank will raise rates by 100 basis points - stark news for stock and bond markets that have been battered by 300 basis points of increases already delivered this year.

At the same time, turbulence in the UK bond market has shown little signs of stabilizing, potentially forcing the Bank of England to deliver more stimulus. Warnings over potential market contagion and global financial instability have grown. The International Monetary Fund earlier this week flagging the risks of "disorderly asset repricings" as global central banks tighten monetary policy.

Still, some investors have been looking past the short-term gloom, citing discounted valuations on U.S. stocks as one reason for cautious optimism.

The market's focus will next turn to a pivotal third-quarter corporate earnings season to help support stock prices.

Meanwhile, with the Nov. 8 U.S. midterm election nearing, one glimmer of hope cited by investors is that the S&P 500 has been higher the year after every one of the 19 midterm elections since World War Two, according to Deutsche Bank.

"For investors with a long-term horizon (of at least three years), there are clearly bargains emerging in several sectors," said Peter Tuz, president of Chase Investment Counsel.

However, "for investors who are focused on the next six months, it is probably a toss-up whether we see a recovery in equity markets or not."