Wall Street ended a tumultuous two-week run relatively quietly Friday, finishing another back-and-forth session mixed as investors were cheered by signs of easing in the credit markets and managed to absorb lackluster economic news with equanimity. But while there was less volatility than during recent sessions, analysts warned that the market still faces rough times.
The expiration of options contracts helped tug stocks in different directions. Still, the Dow Jones industrial average traded within a narrower range than it had in much of the past two weeks and ended down 127. The market's big rallies on Monday and Thursday gave all the major indexes gains of well over 3 percent for the week - but that was just a partial recovery from the devastating double-digit drops of the previous week.
"The stock market has finally realized one thing - that the governments around the world have thrown in a lot of money and they're using all the tools that they possibly can" to restore order to the credit markets, said Peter Cardillo, chief market economist at Avalon Partners Inc., a New York brokerage house. "I'm sure we'll still have a strong bear grip to the market but I do believe the market was way oversold. I do believe we've made a bottom."
In recoveries from past market plunges, trading has remained volatile even after the major indexes reached their lows, so it is widely expected that Wall Street will ratchet higher and lower for some time. And, it is not yet clear that the market has actually touched bottom.
"I think were going to be groping along for the bottom for the next few weeks," said Phil Orlando, chief equity market strategist at Federated Investors.
Cardillo said economic data are likely to remain bleak but that market has already taken into account much of the economy's problems. Some of this week's heavy selling came in response to disappointing economic reports.
"Everything is ugly. It's going to stay this way for a while," Cardillo said.
The market spent the first half of Friday's session moving between gains and losses after the government said new home construction dropped by more than expected last month to the lowest pace since early 1991. Investors' mood seemed to pick up later in the session as lending rates for bank-to-bank loans edged lower, indicating that some bank fears about not being repaid by borrowers are easing. Demand for safe-haven investments like Treasury bills also decreased. The final hour of trading again proved pivotal as in much of October; stocks fluctuated as investors squared away positions for the week.
Given the magnitude of most of the market's moves in October, the indexes' moderate declines Friday seemed barely noteworthy. And advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange, where consolidated volume came to 6.48 billion shares, down from 7.86 billion Thursday.
The revival of dormant credit markets - which follows a series of moves by governments around the world - appeared to draw most of investors' attention. The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.41 percent from 4.50 percent on Thursday, the fifth consecutive day of declines.
Demand remains high for Treasury bills, regarded as the safest assets around, an indication that there is uncertainty lingering in the markets. The three-month Treasury bill Friday yielded 0.82 percent, up from 0.47 percent on Thursday. That indicates a let-up in demand, though the yield has not surpassed 1 percent in more than a week.
The yield on the benchmark 10-year Treasury note fell to 3.93 percent from 3.97 percent late Thursday.
The credit markets began to seize up in mid-September, after the bankruptcy filing of Lehman Brothers Holdings Inc. raised fears among banks that other financial institutions would also be unable to repay their debts. That in turn brought the lending industry to a near-standstill, threatening the economy that depends on a free flow of cash and liquidity.
"I think we're beginning to get a slightly better feeling in the credit market," said Cardillo, pointing to the move in Libor.
It was an erratic week on Wall Street, with the Dow soaring 936 points on Monday, slipping moderately Tuesday, sinking 733 points Wednesday, and then rallying 401 Thursday. The volatility is not providing investors with much relief, but it is a welcome change from last week's relentless plunge, during which the Dow logged its worst week ever and Wall Street lost about $2.4 trillion in shareholder wealth.
The Dow fell 127.04, or 1.41 percent, Friday to 8,852.22, after falling 261 points in the early going and rising 302 points - a 563-point range.
Broader stock indicators showed more modest declines. The Standard & Poor's 500 index fell 5.88, or 0.62 percent, to 940.55, while the Nasdaq composite index fell 6.42, or 0.37 percent, to 1,711.29.
For the week, the Dow rose 4.75 percent, the S&P 500 added 4.6 percent, while the Nasdaq rose 3.75 percent. But the gains follow the previous week's huge losses, when the Dow dropped 18.2 percent, the S&P 500 fell 15.3 percent and the Nasdaq lost 15.3 percent.
The dollar was mixed against other major currencies, while gold prices fell.
David Dietze, president at Point View Financial Services Inc. in Summit, N.J., contends that much of the market's whipsaw moves in the past month have come as hedge funds and mutual funds were forced to sell positions because some shareholders were cashing out.
"These hedge funds are getting hit by redemptions, their credit lines are being pulled and they are having to sell furiously," he said. "Selling begets selling, which begets selling, which begets more selling."
While Dietze sees risks for the economy, he questions whether the rapidity of the stock market's retreat signals the pullback was overdone.
"We have a credit crunch which is morphing into a general recession and certainly a lot of the economic data points down but still, to come in this week and see the markets down 20 percent - basically a bear market within a bear market just this month - you wonder if there isn't just this massive overreaction," he said.
A rise in oil prices helped energy companies, some of which had weighed on the market earlier in the week as oil showed steep declines. Light, sweet crude rose $2 to settle at $71.85 a barrel on the New York Mercantile Exchange. On Thursday, it sank to a 14-month low on worries about a deep global recession obliterating fuel demand.