• Concerns over Fed guidance, Brexit fueled investor worry
  • Heaviest daily volume since March for the benchmark index

Prices fell and volume surged in a week of heightened anxiety for U.S. investors, whose dreams of reaching a record high anytime soon all but faded away.

A streak of six weeks without a 1 percent drop was broken as the S&P 500 Index dropped 1.2 percent to 2,071.22, the worst retreat since April. Shares slid on four of the five days, including a 30-minute plunge on Wednesday that followed testimony from Federal Reserve Chair Janet Yellen that fanned apprehension about prospects for economic growth.

Pain was worse below the surface, with the S&P 500 Banks Index dropping 3 percent for its third straight decrease. The Nasdaq Biotech Index fell 4.1 percent, extending its losing streak to nine days, the longest in two decades. The gauge has lost more than 10 percent during the skid.

Anxiety flared globally as concerns ranging from Japanese stimulus to Britain’s referendum on secession from the European Union pushed the Chicago Board Options Exchange Volatility Index up 14 percent after a 26 percent increase a week earlier. Volume on American exchanges averaged 7.5 billion shares, the most since March. Ten-year Treasury yields fell a third straight week by a cumulative 24 basis points, the biggest three-week plunge since February.

“U.S. yields have moved down very sharply, and the question is whether that’s just in sympathy with Europe and Japan or something more troublesome -- like a sign the U.S. economy is starting to weaken more broadly,” said Charlie Bilello, director of research at New York-based Pension Partners LLC. “The uncertainty around Brexit is also probably adding to the volatility in the past week and people are positioning for that.”

U.S. shares have now fallen on six of seven days after closing within 1 percent of a record on June 8, pushed down by concern over valuations, a four-quarter decline in corporate earnings and perceptions the Fed’s grip on the economy has loosened. The S&P 500 came within points of erasing its 2016 advance on Thursday before rallying, then slipped again in the week’s final session.

Investor worries over Brexit and future monetary policy, along with the quarterly expiration of options and contracts, spurred a resurgence in volume this week. After three weeks of depressed trading activity, average daily volume this week was the highest since March 18 when U.S. shares were emerging from a correction.

On Wednesday, the Fed signaled a cautious approach to further raising borrowing costs, with five more officials seeing only one rate increase this year compared with the previous forecasting round in March. Yellen and her fellow policy makers reiterated rates are likely to rise at a “gradual” pace.

A tightening labor market, signs of rising wages and a pickup in consumer spending have nudged the Fed toward another hike, while a slowing pace of job creation, evidence of lower inflation expectations and persistent risks from outside the U.S. have provided reason for caution.

In the U.K., both sides of the Brexit issue suspended their campaigns following the murder of Labour Party lawmaker Jo Cox, a member of Parliament who supported voting to stay in next week’s referendum. The event shifted investor sentiment after a series of polls in recent days indicated more Britons favor leaving the EU.

The polls had “heightened people’s concern around the Brexit,” said Walter Todd, who oversees about $1.1 billion as chief investment officer for Greenwood Capital Associates LLC in South Carolina. “You started to see more risk-off positioning starting a week ago, and this week people have been buying dollars and Treasuries while selling riskier assets.”

With the fear gauge up almost 50 percent over the past three weeks, trading in five of the most popular VIX-linked exchange-traded securities surged to more than 4 percent of total volume on U.S. exchanges, a level that before this week had never been reached, according to data compiled by Sundial Capital Research Inc. and Bloomberg.

The volatility gauge generally trades inversely to the S&P 500. With hedge funds and large speculators holding a net short position on the VIX as recently as last week, geopolitical uncertainty has caused them to unwind those bets, pushing the volatility gauge up at the expense of equities.

At 19.2 times 12-month earnings, the S&P 500 is trading at one of its highest multiples since 2004 and about 16 percent above its five-year average.

“There’s been some fear and anxiety in the market over the last couple weeks,” said John Carey, a Boston-based fund manager at Pioneer Investment Management Inc., which oversees about $230 billion. “There’s always the potential of market disturbance if some sort of political surprise or geopolitical incident happens. We need to see some validation for where multiples are trading, and we certainly didn’t get it this week.”

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