The CBOE VIX indicator soared to the mid-20s for the first time in two years. Fear was palpable as investors had a classic panic attack.
But then, like the cavalry in those classic John Ford westerns, the Federal Reserve rode to the rescue.
James Bullard, president of the Federal Reserve Bank of St. Louis, said inflation far below its 2% target could lead the Fed to "go on pause on the taper … and wait until we see how the data shakes out into December." The Fed is on track to finish "tapering" its extraordinary bond buying, or quantitative easing (QE3), at next week's meeting.
'They are afraid of the [stock] market going down and they will be blamed.'
James Bianco, president of Bianco Research
But, he added: "If the market is right and it's portending something more serious for the U.S. economy, then the committee would have an option of ramping up QE [in December]."
Boston Fed President Eric Rosengren later said QE3 should end next week, but he could "easily imagine" not raising rates until 2016.
Translation: We've got your back. Don't fight the Fed.
Investors got the message. The S&P 500 Index advanced for three straight days and the VIX fell under 20 again.
Bullard was only the latest Fed official whose words or actions "just happened" to boost the stock market when it was down.