Stocks were mostly lower Friday as gains from a brief rally quickly evaporated and a second straight drop in nonfarm payrolls stirred recession fears.
The Dow Jones Industrial Average, S&P 500 index, and Nasdaq were all lower in afternoon trading. Even financials and techs, which had resisted selling pressure earlier, retreated.
The S&P 500 index on Thursday broke through its January low of 1310, and is heading toward a bear market, which would kick in at 1252. The Nasdaq is already in a bear market, falling 20 percent below its October high on Feb. 29 and remaining there for the past week.
The Nasdaq's "four horsemen" -- Google , Research In Motion , Apple and Amazon -- were what drove techs higher in October and they're what's holding the Nasdaq in a bear marketnow. Until these stocks, which account for about 8.4 percent of the Nasdaq's $3.6 trillion market value, recover, analysts say techs will remain underwater. That's a sharp contrast to the Dow and S&P, where catalysts for both upward and downward moves rotate.
Investors have fallen into a pattern of buying on the dips then selling on the rallies, making for one heck of a wild ride, which is what happened today.
The February jobs report, new record highs in oil every day and the ripple effect of the credit crunch show that "we have a long way to go until the economy is back up and running at full-tilt," Edward Bretschger, director of equity sales and trading at Calyon Securities, told Reuters. "You're looking for a silver lining and you just can't find it," he said.
Losses deepened in afternoon trading amid news that Thornburg Mortgage may not remain an ongoing concern and comments from Kansas City Fed President Thomas Hoenig that excessive rate cuts by the Fed could spur a build-up of inflation and create fresh asset bubbles. Hoenig, who isn't a voting member of the FOMC, was speaking at an Institute of International Finance meeting in Rio de Janeiro.
Thornburg said it has as much as $610 million of margin-call exposure that significantly exceeds its available cash, putting its survival at stake.
Meanwhile, Bill Gross, chief investment officer of PIMCO, told CNBC that he's been buying "high-quality" rated Thornburg paper, with yields between 9 and 11 percent. He also suggested that the Fed should shift its focus to lowering long-term mortgage rates by buying mortgage assets and selling Treasurys.
Some analysts said the market has already priced in the worst of the downturn, which helped spur the short-lived rally.
The market "is a forward-looking animal," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. "This market was struggling for the last six to seven months when the economic data was good ... it was correctly telling you what we got today in the data," he said. Now, the market is "already looking ahead to what the economy is going to be doing in late May or June."
"You've got the Fed ... lowering rates, stimulating lending," Scott Fortune, an analyst with Magee Thomson Investment Parters, told CNBC. The market has been "overly pessimistic" about earnings, and now, he sees the possibility for a stronger second half with mid-single-digit earnings growth in percentage terms for most companies.
Nonfarm payrolls declined by 63,000 jobsin February, the second straight monthly decline. Revisions showed the January decline was steeper than previously thought and the December gain was cut in half to 41,000. The unemployment rate slipped to 4.8 percent.
Big industrials including heavy-equipment maker Caterpillar and conglomerate General Electric, parent of CNBC, were among the biggest decliners.
Energy companies also skidded despite another new high for oil. Exxon Mobil and Chevron both shed about 2 percent.
Crude oil topped $106 a barrel as dollar weakness outweighed recession worries. The dollar touched another record low against the euro Friday, with the euro hitting $1.5463.
Just before the employment report, the Federal Reserve announced measures to ease liquidity pressures, including raising the amount of money it will auction to banks this month to $100 billion. Fed officials said they are in close consultation with foreign central bank counterparts to address liquidity issues.
The move "was an attempt by the Federal Reserve to start showing some leadership" and to be creative, Jack Bouroudjian, a trader with Brewer Investment Group, told CNBC.
"If they can do something with the banks overseas, that will be the catalyst that gives a bottom not only in the dollar but also in the market," he said. "Until then, if you're an investor, you have to let the market come to you. Look for those multinationals... it's going to be very difficult to make money in this environment."
The Fed move gave beaten-down financials a boost, but the Thornburg news and comments from a Fed official in the afternoon dragged down the sector.
Washington Mutual and other lenders have apparently been approaching private-equity firms and sovereign-wealth funds to discuss cash infusions, the Wall Street Journal reported, citing people familiar with the situation.
Bond insurer Ambac Financial Group said it sold $1.5 billion of shares and convertibles, protecting the company from ratings cuts.
Punk Ziegel recommended investors buy Citigroup amid rumors that the bank's capital strength is greater than previously thought.
"There has been a leak/rumor ... that Citigroup's Tier One Capital could be at 8.8 percent of assets at the end of the first quarter," analyst Richard Bove said.
A day earlier, Citigrioup said it aims to cut its home loan exposure by $45 billion, reduce risk and save $200 million a year in an overhaul of its U.S. residential mortgage business.
Semiconductors rallied amid some encouraging earnings from the sector but also gave in to selling pressure in afternoon trading.
The Philadelphia Stock Exchange semiconductor index was down about half a percent. Intel was off slightly.
Analog chip maker National Semiconductor reported results on target, while communications-equipment maker Ciena said its fiscal-first-quarter profit jumped and forecast a 27 percent increase in full-year revenue.
On the downside in techs, diversified-chip maker Marvell reported it swung to a profit in its fiscal fourth quarter but its revenue guidance disappointed investors.
Alcoa was the biggest decliner on the Dow after Friedman Billings Ramsey cut its rating on the stock to "market perform" from "outperform," primarily based on valuation. Friedman also raised its forecast on prices of aluminum, copper, zinc and gold, citing dollar weakness and investment-fund flows.
Send comments to Cindy.Perman@nbcuni.com.