A soothing government report on employment in July eased concerns that the U.S. might slide back into a recession, and the Dow Jones industrial average rose as much as 171 points soon after trading began. But fears that Europe's growing debt crisis might threaten U.S. banks and the fragile economy ruled Friday.
After its early rise, the Dow fell more than 400 points and was down 243 just before noon. Then it rose nearly 400 points in less than an hour and was up 135 points. The rest of the day, the blue-chip stock index bounced up and down, sometimes by as much as 100 points in less than half an hour. It ended the day up 61 points, or 0.5 percent.
Stocks have been "like a tether ball being smacked around the pole" by worries about weakening economies around the world, said Sam Stovall, chief investment strategist for Standard & Poor's Equity Research.
Even less-developed countries like Brazil and China, which have been the motor of global growth for three years, are slowing. Brazilian stocks have dropped nearly 30 percent since Nov. 4 as the country tries to stem inflation. Manufacturing in China shrank in July for the first time in a year.
In Europe, debt problems are spreading, threatening Italy and Spain, the continent's third-and fourth-largest economies. In the U.S, a possible debt default was averted earlier this week, but concerns remain. Chief among them: less spending by consumers, which is leading to anemic growth by both manufacturing and service companies and too few new jobs to lower the unemployment rate significantly.
Investors also worry that the federal government is more likely to hurt the economy than help it. Instead of more spending, the government is trying to reduce its budget deficits by spending less.
Randy Warren, chief investment officer at the investment company Warren Financial Service, said markets were jittery over how leaders in the U.S. reacted to the debt crisis here and how leaders in Europe have reacted to the growing debt problems there.
"The fear was that they had no plan to deal with the situation," Warren said.
In Europe, either Italy or Spain could become the next country unable to repay its debt. European leaders and central bankers might not have the cash needed to prop them up until a larger financial rescue fund can be established.
"The burden of debt has become much more onerous because the outlook for growth is sliding back. That is very concerning for the markets," said Don Smith, economist at ICAP, the largest inter-dealer broker in the world. "The fear is ultimately about defaults and business failures."
In the U.S., few believe the government is likely to stimulate the economy through spending, as it did with its $800 billion stimulus program in 2009. Washington will instead cut spending by more than $2.1 trillion over 10 years to reduce the deficit.
"When investors took a step back and looked at the deal, it became clear that the long-term debt issues have yet to be resolved and that some hard decisions still need to be made," said Bob Doll, chief equity strategist at BlackRock. "Investors do not like uncertainty."
That contributed significantly to the up and down trading on Friday and all week, strategists said. Some investors bought stocks after steep price declines, said Ron Florance, an investment strategist at Wells Fargo Private Bank. That helped reverse the midday loss. Others have rushed to sell their holdings before the weekend, he said. That contributed to the declines seen in the morning and the pared-back gains in the afternoon.
Such volatility often follows historic sell-offs like the one Thursday, analysts said.
All three major stock indexes are in correction. That is, they are down 10 percent or more off their recent highs.
The Dow fell 5.8 percent this week. It plunged 513 points on Thursday alone, the worst day for the Dow since 2008.
The S&P 500, the benchmark for most mutual funds, fell 0.1 percent Friday. It fell 7.2 percent for the week and is down 10.8 percent since July 22, when its steady declines began.
The Nasdaq composite index fell 24 points, or 0.9 percent. It is down 11.4 percent since July 22.
Commodities also fell on worries that weaker global economies will mean less demand. Crude oil fell $8.82, to $86.88 over the week.
Overseas markets also fell Friday. Tokyo, Hong Kong and China all closed down more than 2 percent. Taiwan lost 5.6 percent. Asian markets all closed before the jobs report was released in the U.S. In Europe, shares recovered some of their losses after plunging to their lowest levels in more than a year. Germany's DAX index fell 2.8 percent. It had been down as much as 4 percent before the jobs report was released in the U.S. Other indexes showed smaller losses.
The yield on the 2-year Treasury note fell to 0.29 percent, after brushing a record low of 0.26 percent earlier Friday. Investors looking for safer assets have rushed to buy Treasurys, sending their prices higher and yields lower. The yield on the benchmark 10-year Treasury note rose to 2.56 percent after hitting a low of 2.39 percent on Thursday.
Florance, of Wells Fargo, said he expected stocks to remain volatile for the next several weeks until it's clear how healthy - or unhealthy - the economy is.
The U.S. economy added 117,000 jobs in July, and 56,000 more were added in May and June than reported previously, the Labor Department said. The unemployment rate inched down to 9.1 percent from 9.2 percent, partly because some unemployed workers stopped looking for work, so they were no longer counted as unemployed. Health care providers and manufacturers added jobs.
"From an economic standpoint, 117,000 jobs is hardly sufficient to boost the economy," said Dan Greenhaus, chief global strategist at the trading firm BTIG.
But the number was what people who follow the markets were hoping for. The consensus forecast had been that the economy added 90,000 jobs in July. As the week wore on, investors began to worry the number would be smaller or even negative. After Thursday's market meltdown, the employment report, which was released before the market opened Friday, was considered reassuring.
More than 200,000 jobs need to be created every month to rapidly reduce the unemployment rate. Unemployment has been above 9 percent nearly every month since the recession officially ended in June 2009. The economy has created an average of just 72,000 jobs over the last three months, down from 215,000 from February through April.
At the same time, the economy grew at just a 1.3 percent annual rate in the second quarter, less than economists expected. That weakness means one economic shock or policy mistake could tip the economy into a recession, Wachovia senior economist Mark Vitner said. Nigel Gault, chief U.S. economist for IHS Global Insight, said the probability of another recession is 40 percent.
Even so, many analysts said the economy might not be as bad off as it seems. For one thing, companies have reported strong profits and are flush with cash. They also cut costs drastically during the recession.
Those in the S&P 500 have amassed more than $963 billion in cash. That's up from $610 billion at the start of the recession, according to S&P. Earnings in the second quarter rose 11 percent from a year ago for the 422 companies in the S&P 500 index that have reported so far.
Even so, only three of the S&P 500's ten industry groups are up for the year: Health care, utilities and consumer staples. Traders consider those companies to be relatively recession-resistant.
Procter & Gamble Co. rose 1.7 percent Friday. Fourth-quarter revenue and income jumped on strong sales in emerging markets.
Viacom Inc. rose 1.9 percent after the media company said its income and revenue increased more than analysts expected in the second quarter because of strong advertising sales and fees from cable companies.
Priceline.com Inc. surged 9.2 percent, the most in the S&P, after the company reported that it earned far more than analysts had expected in the second quarter as travel bookings on the website increased.