A growing belief that the country is headed toward recession gave the stock market its fourth straight week of losses.The anxiety in the market was obvious Friday as the major indexes went from modest gains early in the day to another sharp loss. The Dow Jones industrial average had its 10th move of more than 100 points this month.
"We just don't know whether we're going to have a recession," said John Burke, head of Burke Financial Strategies.
Investors began the week on a more confident note after last week's volatility, the worst the market has had since the 2008 financial crisis. The Dow rose nearly 215 points on Monday when Google, Time Warner Cable and Cargill were among companies announcing multi-billion deals. The market remained relatively calm the next two days. But on Thursday, a stream of bad economic news in the U.S. combined with worries about Europe's debt problems and sent the Dow down 419 points.
On Friday, there was little news to help investors determine their next moves. And some traders did not want to take the chance of holding stocks if bad news came out of Europe over the weekend. So they began selling during the afternoon. European investors were also cautious - banking stocks fell near two-and-a-half-year lows, dragged down by rumors about banks' potential losses on bonds issued by heavily-indebted governments.
"These things usually break out over the weekend and then you have a mad dash Monday to react to them," said Mike McGervey, the head of McGervey Wealth Management.
The drop late in the day recalled the 2008 financial crisis. Then, many investors stepped up their selling on Friday afternoons out of fears that another bank might fail over the weekend - as Lehman Brothers did on Sunday, Sept. 15.
The Standard & Poor's 500 stock index fell 17.12, or 1.5 percent, to 1,123.53. It was down 4.7 percent for the week. The Nasdaq composite fell 38.59, or 1.6 percent, to 2,341.84. It was down 6.6 percent for the week.
Although stocks fell, investors did not seek the safety of Treasurys, as they have the last three weeks. The yield on the benchmark 10-year Treasury note rose to 2.07 percent from late Thursday's 2.06 percent. It had been up to 2.11 percent earlier in the day. The yield fell below 2 percent Thursday for the first time as heavy demand sent its price sharply higher.
Since July 21, the market has gone from one crisis to another, and the weakening U.S. economy has been at the heart of the selling. In late July, the concern was the debt debate going on in Washington. In early August, it was the downgrade of the U.S. debt rating by Standard & Poor's. Since then, worries about the impact of the downgrade have faded, and the growing evidence that the economy is slowing has driven stocks down.
Signs of a slower economy around the world have only made investors more pessimistic about the U.S. Earlier this week, Germany said its economy grew at just 1.3 percent in the second quarter. And Germany is the strongest economy in Europe.
Stocks fell Thursday on news of another drop in home sales, weaker manufacturing in the mid-Atlantic states and an increase in the number of people who applied for unemployment benefits.
The stock market tends to reflect the expectations that investors have for the economy and company earnings six to nine months in the future. So traders are interpreting the numbers they're seeing as part of a slide that will continue for some time.
On Friday, JPMorgan Chase & Co. joined other financial firms and cut its forecast for economic growth during the fourth quarter. It's now predicting growth of 1 percent, down from an earlier forecast of 2.5 percent. That added to the recession fears.
A recession is traditionally thought of as two consecutive quarters of negative economic growth, measured by a country's gross domestic product. With expectations of growth in the U.S. already low, investors worry that the economy can't withstand another unexpected event like the earthquake in Japan or the string of bad weather that ravaged the South earlier this year.
JPMorgan analyst Michael Feroli said business confidence, household wealth and global growth all look worse than just a few weeks earlier. That will keep economic growth nearly flat in the first quarter of 2012, he said.
Next week is likely to bring more volatility. On Friday, the government will give its second estimate of how the economy did during the second quarter. It said a month ago that the GDP grew at just 1.3 percent during the quarter. Economists expect the government to announce a lower reading: 1.1 percent. The GDP report in late July contributed to the market's heavy losses. So did the government's revised estimate for the first quarter: 0.4 percent.
Next Friday also brings the Federal Reserve's annual retreat at Jackson Hole, Wyo. It was a year ago at Jackson Hole that Fed Chairman Ben Bernanke hinted that the central bank would begin buying $600 billion in Treasurys to stimulate the economy. The buying ended June 30. Now investors want to know if the Fed will act again.
But some analysts think that the U.S. economy will continue to grow on its own, albeit slowly.
"The market is thinking that we're going into a recession, but the data is telling you that we're not," said Jonathan Golub, chief U.S. market strategist for UBS. He pointed to an increase Thursday in an index of economic leading indicators that suggested the economy is expanding slowly.
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