A wild ride on Friday that ended in the black for the Dow Jones was not enough to drag US stock markets out of a two-week slump or help them recover from their worst week since the financial crisis.
Thursday’s biggest one-day plunge since late 2008 — 4.3 percent for the Dow, 5.1 percent for the NASDAQ — took markets to lows for this year that some mildly positive data on Friday and a fairly solid earnings season could not reverse.
The Dow Jones Industrial Average finished at 11,444.61, down 5.75 percent for the week. At that level, it had lost 1.15 percent since the beginning of the year.
The broader S&P 500, just barely in the red on Friday, lost 7.19 percent for the week to 1,199.38; it was 4.6 percent lower than it started the year.
The NASDAQ fared the worst: It lost nearly 1 percent on Friday to 2,532.41 and 8.13 percent for the week. However, the tech stock-heavy index was only 4.5 percent off for the year.
The week started under the cloud of the political battle over the debt ceiling — the fears that the country would be forced to default on its debts in the ceiling was not raised by Tuesday.
When Republicans and Democrats cobbled together a last-minute deal that day, though, the markets took it with a pinch of salt.
Nor did they respond during the week to strong earnings from AIG (with the share price ending the week 12.5 percent down), Proctor & Gamble (down 1.5 percent) General Motors (down 5.0 percent) and Pfizer (down 9.1 percent).
Financial shares were hit hard by more eurozone worries, losing 7.1 percent for the week; Bank of America shed 15.9 percent and Citigroup lost 12.8 percent.
Analysts were divided over whether the sharp selloff was justified.
“The market has been on sugar high for the past two years, whereas the real economy hasn’t got any better,” Mace Blicksilver of Marblehead Asset Management said. “Now it becomes obvious that equities are on their own and they are done justifying their levels that said, ‘While the equity market sell-off is disconcerting, stocks have a history of sending false signals.’”
“In fact, the frequently used ‘bear market’ indicator of a 20 percent drop in stock prices has occurred in as many expansions as recessions. The employment report could quell fears,” Blicksilver added.
Marc Pado of Cantor Fitzgerald forecast a light week next week until there is a little more economic data.
“The focus is going to be on Europe, which is the main trading partner for the US. So we need them to be stable if nothing else,” Pado said.
“After a brutal week in the financial markets, investors will focus on Tuesday’s [US Federal Reserve policy committee] meeting for signals of whether and how the Federal Reserve will respond,” economists at IHS Global Insight said.
“The Fed’s statement could start paving the way for QE III [third round of quantitative easing], which is looking increasingly likely, given the current outlook,” they said, referring to a possible new liquidity/stimulus program.