Stocks finished sharply lower Friday as the market was rattled by concerns about the future of the nation's top mortgage-finance agencies.
The Dow Jones Industrial Average ended down 128.48, or 1.1 percent, at 11100.54. It was a violent trading session for the blue-chip index that saw a triple-digit bloodbath for most of the day and the Dow dipping below 11000 for the first time in nearly two years.
A brief afternoon pop, triggered by a Reuters report that suggested the Federal Reserve may allow Fannie Mae and Freddie Mac to tap the discount window for emergency lending, was followed by a stomach-flipping drop to the closing bell.
All three major indexes ended in bear-market territory, with the S&P 500 index shedding 1.1 percent and the Nasdaq off 0.8 percent.
For the Nasdaq and S&P, it was the sixth straight week of decline and biggest losing streak since 2004.
Fannie Mae plunged more than 22 percent while Freddie Mac pared its loss to just 3.1 percent. Both stocks were off nearly 50 percent at one point as the market was gripped with fear about a potential collapse or rescue of these government-backed mortgage lenders.
Mixed messages coming from Washington were of little help: Treasury Secretary Henry Paulson said earlier that the Treasury Department is intent on supporting Fannie and Freddie "in their current form" and that he sees no government bailoutfor the troubled pair. In the afternoon, a Reuters report suggested that the Fed may open its discount window for emergency lending to Fannie and Freddie. A source at the Fed told CNBC late Friday that it had not held any talks with Fannie or Freddie and wasn't ready to discuss options for the troubled mortgage lenders.
For the week, both Fannie and Freddie were down more than 45 percent, finishing at their lowest closing value in about 17 years.
"What we’re looking at right now … confidence that is completely washed away from these stocks but more importantly, the market collectively is holding its ear out, waiting for something to be done," Jack Bouroudjian of Brewer Investment Group, said on CNBC.
"Sometimes, I feel as if we're in ancient Rome and Nero is playing the fiddle while Rome is burning around us," Bouroudjian said.
"How much more pressure in financial markets do we need?" asked Art Hogan, chief market analyst at Jefferies, adding that the market was clearly pricing in a worst-case scenario based on the Fannie and Freddie fears.
Adding insult to injury was the surge in oil prices to a new intraday high of $147.27 a barrel, which made the predictions of $150-$160 a barrel seem more like a reality and less of a future event, Hogan said. Oil ultimately settled at $145.08 a barrel .
Oil had fallen by about $9 in the first two sessions of the week, languishing in the middle, before rocketing in the past two sessions. After all of those gyrations, oil ended the week down just 21 cents, or 0.1 percent from its settle last Friday.
For the week, Chevron was the biggest drag on the Dow, falling 6 percent, as the oil giant said it expects a loss from refining and marketing operations for the quarter. ExxonMobil was the biggest decliner on the S&P 500, dropping 3 percent.
Over on the Nasdaq, Cisco led the decline for the week, shedding 6 percent, after CEO John Chambers said the networking-gear maker's customers are now projecting an economic recovery next year, as opposed to this year.
In terms of sectors, financials were the week's biggest decliner, down more than 6 percent, while health-care stocks were the biggest gainer, climbing more than 1 percent amid a boost from Schering-Plough , which shot up nearly 8 percent.
On tap for next week are the three "most important parts of economic data," Hogan said: Producer prices, consumer prices and jobless claims.
Plus, earnings season gets into full swing, with a slew of financials on tap, including JPMorgan , Merrill Lynch , Citigroup and several regional banks.
Inevitably, they'll dredge up a pile of writedowns and capital-raising efforts but "we're getting to a point where we've probably priced in the worst-case scenario," Hogan said. "We may have some pleasant surprises -- that's the beauty of having such a low bar!"
Among other financials in traders' crosshairs today: Lehman Brothers tumbled 17 percent, bringing its two-day decline to 29 precent, amid rumors that firms have curbed trading with Lehman. Lehman -- and Pimco, one of the firms mentioned in the rumors -- smacked down the speculation on Thursday.
The whole sector took a hit -- even JPMorgan, whose exposure to credit issues is less than many of the other Wall Street titans, dropped nearly 4 percent.
Citigroup cut its estimates and price targets on several U.S. banks, including JP Morgan and Bank of America.
Wachovia tumbled more than 12 percent, bringing its two-day decline to 20 percent, after the regional bank said mortgage and legal problems will result in a $2.6 billion to $2.8 billion second-quarter loss, much larger than expected.
General Electric shares finished flat after the parent of CNBC met earnings expectations-- a welcome relief after last quarter's dismal miss -- but said it expects its third-quarter profits to be flat or down at its finance arms.
Just before the numbers, GE announced that it has agreed to sell its Japanese consumer-finance operation for $5.4 billion to Japan's Shinsei Bank. This came a day after the conglomerate announced plans to spin off its consumer and industrial units, which include the appliances and lighting divisions.
On the upside -- yes, there was one today -- consumer confidence rosein early July as retail discounts buoyed the mood of shoppers.
(Cub or bear market: Is the carnage almost over? Click on the video at left.)
In other economic news, the U.S. trade deficit narrowed unexpectedlyto $59.8 billion in May. A separate report showed import prices rose 2.6 percent in June, though most of that was due to energy prices, and export prices climbed 1 percent.
Meanwhile Apple's "second coming" iPhone got a hot reception, with buyers storming stores in Asia and queues forming in European cities. But Apple hit a few snags and investors were less enthused, sending shares down 2.3 percent.
That's par for the course with Wall Street, jazzed up until the big day, then already wondering what's next before the guys who spent the night in lawnchairs even get to the cash register.
One of the buzz points out of Sun Valley is a Google phone is due out later this year.
On Tap for Next Week:
TUESDAY: PPI; retail sales; NY Fed manufacturing report; business inventories; Fed's Bernanke, Yellen speak; Earnings from J&J, State Street, US Bancorp, Intel, CSX
WEDNESDAY: Mortgage applications; CPI; industrial production; Bernanke speaks; oil inventories; Fed minutes; Fed's Hoenig speaks; Earnings from Delta, Wells Fargo, eBay and Yum
THURSDAY: Jobless claims; housing starts; Philly Fed manufacturing report; natural-gas inventories; Earnings from Coke, JPMorgan, Nokia, PNC Bank, IBM, Microsoft, Capital One and Merrill Lynch
FRIDAY: Earnings from Citigroup, Honeywell
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