Stocks closed lower Friday, ending another bad week and one of the worst starts ever to a new year.
Friday's selloff came despite encouraging blue-chip earnings reports and pledges from the federal government to resuscitate the flagging economy.
The Dow Jones Industrial Average plunged 4% for the week, leaving it down 8.8% for the year so far. The average is also down 15% from its most recent high, getting it closer to the 20% drop that constitutes bear market territory.
The S&P 500 Index fell 5.4% for the week, leaving it down 9.8% for the year so far and 15% off its most recent high.
The Nasdaq Composite Index tumbled 4.1% for the week, leaving it down 12% for the year and 18% from its most recent high.
Stocks initially rallied on Friday, spurred by three factors, none of which generated enough optimism to give the rally legs: Strong earnings from General Electric and International Business Machines ; heavy covering on short-sell positions; and charts showing the market at its most oversold in more than five years.
But President Bush's late-morning pledge to deliver a stimulus package under discussion between the White House and Congress only aggravated losses, and analysts talked of a possible need for capitulation in a market that has made repeated efforts at finding a bottom but has failed.
There was widespread sentiment that the stimulus, coupled with a Federal Reserve interest rate cut, would be a case of too little, too latefor the market.
"Unfortunately what happened today has been happening for the past several weeks: Any type of positive reaction by the market is met by selling," said Richard Sparks, senior equities analyst at Schaeffer Investment Research. "I think it's evidence of a lack of confidence in the market.
"You don't have any of the big players who are actually willing to commit even for a day to the market being bullish. I think it's just really one of those markets that we're in where everything is negative."
Sprint, Bond Insurers Tumble
Sprint Nextel was among the big losers of the day after the telecomm said it would cut 4,000 jobs to increase its performance after losing more subscribers than it had anticipated.
More troubles continued among bond insurers, even though Ambac, which has lost about 90 percent of its stock value in the past three months, gained sharply after deciding to forego raising $1 billion in capital to stave off a cut in credit rating. Elsewhere in the sector, shares tumbled at MBIA, Allianz and Dow component American International Group.
Semiconductor stocks helped keep the tech-laden Nasdaq from falling as far as the Dow and the S&P 500. Among the big gainers were NVIDIA and Micron Technology, while bellwethers Apple and Research in Motion also performed well.
But credit concerns continued to loom over Wall Street, with financial leaders including JP Morgan and Citigroup posting losses. One of the lone bright spots in the sector was Washington Mutual , which gained on persistent speculation that it might be acquired by JP Morgan.
"This whole credit thing just has to work its way through the system," Sparks said. "What the market is saying and what we are seeing is the Fed is behind the curve and not acting significantly enough."
Still, there were those who didn't believe market sentiment had reached the depths it had seen before the current expansion.
"When you're at the bottom of the market there's this sense of despondency, and I don't think we're there yet," said Brian Gendreau, strategist at ING Investment Management in New York City, who attributed the current problems in large part to an unwinding of the globalization trade so popular in the 2007 market.
Investors were again left to ponder whether the market was reflecting a full-scale recession in the US economy, despite the efforts by the Fed and Congress to help.
"I don't think it's going to have much of a material effect on growth in 2008," Eric Roseman, investment director at the Sovereign Society, said of the stimulus package and rate cut. "It should help in 2009, but it's a drop in the bucket at this point. You've got a problem not just in subprime, but it's also spilling over into other parts of the economy.
"I think it's safe to say the bull market is dead."