After trading in a 1,000-point range for the first time ever, stocks ended Friday with a whimper, closing slightly lower amid hopes that the holiday weekend could bring good news.
The Dow Jones Industrial Averageand the Standard & Poor's 500both finished the day about 1 percent lower, while the tech gauge Nasdaqended slightly positive. The Dow and the S&P closed the week off 18 percent, while the Nasdaq dropped about 13 percent.
"An incredible day, but I wasn't worried," John Lynch, of Evergreen Investments, said on CNBC. "We were clearly in a scary environment there for a while."
But surprisingly strong bank stocks held forth and barred the door from further losses. Optimism also surrounded the meeting of the Group of Seven, or G7, as finance leaders from the world's rich nations pledged a coordinated response to the credit crisis.
At the same time, a steep round of earlier selling seemed to reflect a lack of confidence in the US government's attempts to shore up bank balance sheets and to provide liquidity into the market.
"All of the workings of government to try to not let the credit crisis run its course, the abrogation of free markets, and to not let the deflationary recession run its course is going to be very pernicious for us in the long run," said Michael Pento, senior strategist at Delta Global Advisors. "I do think in the short run the market could get some footing here in the next few weeks to try to make a reasonable recovery from its lows. But I think that will be short-lived."
There were hopes that the market was finding a bottom, with analysts keeping a close eye on volume to tell the capitulation story. Volume seemed to be in line with a market bottom as nearly 3 billion shares traded hands, and turbo-charged price movement marked the day, with the Volatility Index blowing past its previous high and soaring over 75 at one point.
"We're seeing asset classes across the board being sold--commodities, energy, equities, bonds, you name it," Peter Kenny, of Knight Equity Trading, said on CNBC. "Everything is being sold. That's a sure sign that we're reaching some sort of tipping point in the market and market psychology."
Some of the big banking stocks roared towards the end of trading, with Wachovia and JPMorgan Chase leading the charge.
Also in the sector, Wells Fargo emerged trimuphant in its scrum against Citigroup to buy Wachovia. Wells Fargo will pay about $11.38 billion for Wachovia after Citi backed away.
Meanwhile, Dow component General Electric's earnings report were a bright spot after the CNBC.com-parent reported a third-quarter profit of 45 cents a share, in line with market expectations.
Leading tech stocks also provided momentum, with massive spurts from Apple and eBay goosing the Nasdaq.
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But on the downside, battered insurer American International Group and energy giants Chevron and ExxonMobil were among the big Dow losers.
Moody's warned it might cut the long-term debt ratings of Morgan Stanley and Goldman Sachs, which would increase their cost of borrowing. The government could consider nationalizing the two investment banks if things get worse, as they are too big to be allowed to fail, Hugh Hendry, Partner and CIO at Eclectica, told CNBC.
Consumer stocks took a pounding, with Revlon leading a move lower among cosmetics companies.
And worries arose whether electronics retailer Circuit City would survive after shares moved below the $1 threshold for listing on the New York Stock Exchange.
But General Motors shares gained after the company said it is not considering bankruptcy, a day after it warned that the credit freeze was threatening auto sales. Competitor Ford also rose after longtime Chief Financial Officer Don Leclair said he will retire Nov. 1 after 32 years with the company.
Analysts debated the role the government needs to play to guide the market out of the worst Dow selloff in history, with those in favor of further involvement wanting more done to heal the credit markets.
"You're not going to fix the stock markets until you fix the credit markets," investor Wilbur Ross said on CNBC. "So I hope that the government comes out with some broad-based things, be it some combination of insuring interbank lending and/or putting a limit on insured deposits all the way up."
Oil, Bonds Sharply Lower
Energy prices again slid, with crude falling more than $7 to near $78 a barrel. There was speculation that economic deflation could send crude prices plunging, though they regained some ground in electronic trading.
"I think we're near a low near-term but longer term I think it could get a lot lower--$50, $40, $30, I'm not even ruling out $20, because this market always moves further and faster than any of us expect it to," Peter Beutel, of Cameron Hanover, said on CNBC. "If it gets there it will be a disaster because we'll put so many exploration and drilling companies out of business."
Bond prices, particularly for long-dated issues, also moved lower as investors took any avenue they could find to raise cash, including selling the traditional safe-haven instruments of Treasurys.
Traders got a respite amid the gloom, letting out a huge morning roar on the New York Stock Exchange when the Dow made a quick foray this morning into positive territory. See the video.
"You got a sense that once they got to that spot when they broke 8,000 in the Dow that they were holding them, that they were going to be able to fend off the waves of selling," Gordon Charlop, of Rosenblatt Securities, said on CNBC. "You could just get a sense that they were finding a level."