Two weeks after a mini-meltdown that still hasn't been fully explained, the stock market had another tumultuous ride this week as disarray in Europe heightened fears of a global slowdown.
Even with a moderate comeback on Friday, this week is shaping up to be one of the worst since the bull market began more than a year ago. Major stock indexes are now 10 percent or more below peaks reached in late April. Declines of that size are known as "corrections."
Whether the market has finished wringing out its excesses is anyone's guess. Stocks posted slight gains in relatively subdued trading Friday, a day after a swift 370-point plunge gave the Dow Jones industrial average its worst drop in more than a year. That left the Dow and other market barometers about where they were in early February and down about 3 percent for the year.
The immediate catalyst for this week's sharp declines was deepening confusion over how Europe intends to get control of its public finances, restore order to financial markets and confidence in the continent's shared currency, the euro.
Germany broke ranks from its European neighbors this week in single-handedly reining in speculative trading in European bonds. And on Friday it was rebuffed in its calls for harsh punishments for European countries that consistently flout rules on fiscal spending limits.
Just how big of a worry Europe's financial mess is for the rest of the world was brought home loud and clear late Thursday when Federal Reserve Governor Daniel Tarullo told a congressional panel that the timing of Europe's financial swoon could pose a "potentially serious setback" to the global economy. If fearful Europe's banks crack down on lending, the thinking goes, other banks around the world could follow suit, tripping up economies around the world.
The unsettling news from Europe this week reminded investors of how tepid the U.S. economic recovery really is in historic terms. Gross domestic product rose 3.2 percent in the first three months of the year, but that's not nearly as strong of a comeback as many had expected. Companies also aren't hiring that much, unemployment is still around 10 percent and the housing market hasn't recovered from its slump.
"Normally you would get a much stronger snapback," said Paul Ballew, chief economist at Nationwide Insurance in Columbus, Ohio, and a former senior economist with the Federal Reserve, "Given the magnitude of the downturn, growth should be much stronger than that already."
U.S. markets opened lower again on Friday, but a rally in financial shares helped stocks edge higher. JPMorgan Chase & Co. and Bank of America Corp. were the biggest gainers in the 30 stocks that make up the Dow Jones industrial average after the Senate passed long-awaited financial reform legislation, removing a significant overhang for U.S. banks.
In other signs that a flight away from risky assets this week was waning, Treasury bonds were flat after spiking on Thursday, the dollar edged lower and commodity prices stabilized. Gold prices edged lower, and the Vix index, a gauge of stock market volatility, fell 5 percent after surging higher on Thursday.
In late afternoon trading, the Dow rose 4.53, or 0.05 percent, to 10,072.54. The broader Standard & Poor's 500 index rose 2.45, or 0.2 percent, to 1,074.04. The Nasdaq composite index rose 3.73, or 0.2 percent, to 2,207.74.
About three stocks rose for every two that fell on the New York Stock Exchange, where volume came to 1.7 billion shares, versus 1.5 billion at the same time Thursday.
The Dow had last fallen below 10,000 on May 6 when it lost nearly 1,000 points in an afternoon rout that was the biggest ever intraday slide. Regulators have said they are still unclear on what caused the brief drop.
Bond prices were mixed after jumping Thursday as investors dumped anything seen as risky, including stocks and commodities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.21 percent from 3.22 percent late Thursday.
Crude oil fell 76 cents to $70.04 per barrel on the New York Mercantile Exchange.
Even with the drop of 12 percent from its 2010 high, the S&P 500 index is still up 58 percent from the March 2009 bottom and is down 31.5 percent from its record close of 1,565 in October 2007.
Corrections can be scary but they can be good for markets. Analysts say major stock indexes had become overheated in their climb from a 12-year low in March 2009. Corrections also aren't unusual. Drops of 10 percent occur in most years and don't necessarily that stocks will keep sliding.
"We don't think there is any predictability that just because we've had a 10 percent correction now that suddenly we're in for another 10 percent drop," said Bill Urban, principal with Bingham, Osborn & Scarborough, based in San Francisco.
Britain's FTSE 100 fell 0.2 percent and briefly dropped below the psychological threshold of 5,000. Germany's DAX index slid 0.7 percent, and France's CAC-40 fell 0.1 percent. Japan's Nikkei stock average fell 2.5 percent.