One thing investors are probably thankful for is that this holiday-shortened trading week is finally over. The U.S. stock market logged just a half day Friday but not before posting more deep and broad-based losses, as European sovereign debt fears continued to push traders out of riskier assets.
The Dow Jones Industrial Average ($INDU) fell 96 points, or 0.9%, to close at 11,092. The broader S&P 500 ($INX) shed 9 points, or 0.8%, to settle at 1,189. The tech-heavy Nasdaq Composite ($COMPX) dropped 9 points, or 0.3%, to finish at 2,535.
Black Friday sales appeared to get off to a strong start but investors were hardly in holiday mood this week. No sooner did Ireland agree to a rescue package from the European Union and the International Monetary Fund than the second-guessing began to start -- not only about the Irish debt situation but about the wobbly finances of the other sick men of Europe.
It's dawning on investors that the nations of Portugal, Ireland, Italy, Greece and Spain -- the so-called PIIGS of Europe -- are going to be a threat to the euro and the euro system for some time, says Dean Popplewell, currency analyst Oanda, which offers retail trading and market making in the spot foreign exchange markets.
"The PIIGS are starting to smell again," Popplewell says. "I suspect it won't be too long before the spotlight falls on Spain, which is orders of magnitude greater than the problems with Ireland or Greece."
Anything that smacks of financial crisis on the Continent has been driving investors out of riskier assets like stocks and commodities and into the perceived safety of the dollar and Treasurys -- and that trade was back on again Friday.
Stocks markets across Europe saw deep, broad-based selling, especially in Spain, where the Ibex 35 in Madrid plunged as much as 3% early in the session. Pressure on the euro lifted the dollar. The U.S. Dollar Index, which measures the greenback against a trade-weighted basket of six major currencies, jumped 0.6%, a large move in currency terms. Money flowed into the relatively safety of Treasury, as the yield on the benchmark 10-year Treasury note fell to 2.86% from 2.91%. (Bond yields and prices move in opposite directions.)
For the week the Dow lost 1% while the S&P 500 fell 0.9%. The dollar, meanwhile, rose more than 2%. It's an inverse relationship that has been in play for months. If European sovereign debt worries continue on this track, that could be mean more good news for the dollar -- and more bad news for stocks. See the chart below:
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