Stocks closed mixed but recovered the bulk of the day's losses in the final hour of a wild trading session.
The markets were roiled all day as the Federal Reserve added $38 billion to the financial system to ease concerns that problems in the subprime mortgage market would spark a credit crisis. Though the moves appeared to calm the markets initially, some investors were spooked when the Fed entered the market for a third time in afternoon trading.
"I wonder why they did it three times instead of just one," said Charles Rotblut, senior market analyst at Zacks.com. "Are they seeing something no one else in the market is seeing or did they just underestimate demand?"
Rotblut added: "But there definitely is a positive reaction. People are relieved they are not being hawkish to inflation. This said, I don't think we're out of the woods yet."
Despite all the volatility, stocks ended with relatively minor changes on Friday and were actually up for the week. The Dow Jones Industrial Average posted a weekly gain of 0.4%, while the S&P 500 rose 1.4% and the Nasdaq Composite climbed 1.3%.
The Dow remains up 6.2% year to date while the Nasdaq is not far behind with a 2007 gain of 5.4%. The S&P 500 has lagged the other major indexes, clinging on to a year-to-date rise of 2.5%.
Analysts say investors should brace for more weeks like this one.
"You're going to have choppy couple of weeks here with death by paper cuts," said Jason Trennert, chief investment strategist at Strategas Research Partners. "Ultimately the system is strong, valuations are very reasonable and the ECB and Fed seem to be on top of their game … and are there to support the market if need be. Once the dust settles we think the Fed is going to ease and I think a lot of large cap stocks are on sale here."
Other market pros agreed that the recent selloff may have been overdone.
"Personally, I think its being overdone and every talking head is talking about the end of the world, but the reality is that it's not," said Patrick Fay, director of equity trading at DA Davidson.
"The fundamentals have gone out the window for awhile, and in some cases it means that better value has been created," Abby Joseph Cohen, chief U.S. portfolio strategist at Goldman Sachs, said on CNBC. "We think (the S&P 500) is about 10% underpriced and that typically has been a good entry point."