Santa and his jolly rally are long gone: The Dow logged its worst week since late November, erasing all of last week's gains in a brutal week littered with layoffs and profit warnings, and capped with a surge in unemployment.
The Dow Jones Industrial Average ended down 143.28, or 1.6 percent, to close at 8,599.18.
The blue-chip index bobbed in a sea of red for most of the day following a quick pop at the open amid relief that only half a million jobs were shed from payrolls last month. The market buzz had indicated the number could be as high as a million.
The S&P 500 shed 2.1 percent, while the tech-heavy Nasdaq lost 2.8 percent.
For the week, the Dow shed 4.8 percent, wiping out all of last week's gains. It was the Dow's biggest decline, both in point and percentage terms, since November. The S&P lost 4.5 percent and the Nasdaq fell 3.7 percent.
Financials lost the most this week, falling more than 9 percent, while materials fared the best, losing just 1.2 percent.
The worst performers on the Dow this week were JPMorgan Chase ; Alcoa , which announced plans to lay off more than 15,000 employees; and Wal-Mart , which unexpectedly missed its holiday-sales target and issued a profit warning.
For the year, the Dow is now off 2 percent, while the S&P has shed 1.4 percent and the Nasdaq has lost 0.3 percent.
The jobs numbers weren't as bad as expected this morning but were nonetheless staggering: Employers slashed 524,000 jobs from nonfarm payrollslast month, the Labor Department reported. Prior months were revised to show that an additional 154,000 jobs were lost between October and November than previously thought. That means a total of 1.9 million jobs were lost in the four months through December, and the total for all of 2008 was 2.6 million, the most since 1945.
The unemployment rate jumped to 7.2 percent, the highest in more than 15 years, from a revised 6.8 percent in November.
"Overall, a terrible report," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients. "[T]he only possible glimmer of light is that the maximum rate of fall of payrolls is hopefully not far off," he said.
Big late-breaking news from the banking sector: Citigroup and Morgan Stanley are in deep talks to merge their brokerage units, CNBC has learned. Citigroup shares shed 5.7 percent, while Morgan Stanley rose 1.3 percent.
Separately, Citigroup said former Treasury Secretary Robert Rubin has resigned as a senior adviser to the firm but will serve out his term as a member of the board, which expires next spring.
General Motors shares slipped following news that GMAC Chairman Ezra Merkin, a major "feeder fund" manager for Bernard Madoff, has resigned.
In the Bernard Madoff scandal, the financial carnage is now spreading from charities and wealthy individuals to labor union pension funds, CNBC has learned. One union, the Carpenters local in Syracuse, N.Y., has lost the majority of the $100 million to $150 million it had in pension money because of its dealings with Madoff, people close to the matter said.
And under pressure from federal authorities, the Swiss bank UBS is closing the hidden offshore accounts of its well-heeled American clients, potentially allowing their secrets to spill into the open, the New York Times reported.
And the profit warnings continued to flood in ahead of next week, when Alcoa reports, marking the unofficial start to earnings season.
Chevron shares shed 1.9 percent after the company warned that its earnings would be "significantly lower"in the fourth quarter compared with the prior quarter due to the impact of the sharp drop in oil and gasoline prices.
The warnings also continued to trickle in from the retail sector: Coachslashed its guidance for the holiday quarter, citing lower traffic. Coach was among the few retailers that stuck to its guns and didn't do dramatic markdowns — any markdowns, actually — during the holiday season, while other retailers frantically lowered their prices.
Coach, one of the five worst performers on the S&P this week, also joined the growing list of retailers that have said they will stop giving guidance. Shares fell 13 percent Friday and 18 percent for the week.
The same-store sales numbers that came out Thursday were predictably dismal, though the surprise was that even Wal-Mart missed its target and issued a profit warning. Even luxury retailers like Coach and Tiffany are feeling the pinch as this recession has slashed individual's net worth across the board, regardless of demographic.
“Discretionary spending is DOA — dead on arrival,” declared Howard Davidowitz, chairman of retail-consulting and investment-banking firm Davidowitz & Associates.
Palm shares shot up 34 percent to $5.96 after the gadget maker's new smartphone and operating system dazzled the analysts at the Consumer Electronics Show.
The new Palm "Pre," as it's called, appears "elegant, intuitive, sufficiently
differentiated, and ... a legitimate competitor to the iPhone," Avian Securities analyst Avi Cohen said.
Shares of its rivals were mixed: iPhone maker Apple skidded 2.3 percent, while BlackBerry maker Research In Motion advanced 2.1 percent, perhaps helped by news that President-elect Obama just can't live without his BlackBerry.
Elsewhere in tech land, Rambus shares fell 39 percent after a judge ruled in favor of rival chip maker Micron Technologies in a patent case.
Lennar tumbled 20 percent after a letter emerged on the Internet about a questionable late-1990s transaction involving the company. The company issued a statement saying that essentially the letter was derived from a disgruntled litigant who made false accusations and that the related litigation was recently dismissed by a California judge.
Boeing slipped 0.8 percent after the aerospace giant announced plans to lay off 4,500 workers at its commercial-plane unit.
It was, for sure, an eventful week that saw auto and retail sales tank, a slew of layoff announcements and profit warnings, the Dow log its worst session in a month(Wednesday) and, of course, the news today that more than half a million jobs were slashed from payrolls.
This all set a truculent table for next week, when earnings season gets underway and the carnage begins.
"It's going to be ugly,"Tom Higgins, chief economist at Payden & Rygel, told CNBC earlier this week. "I think you're going to see a horrible earnings season."
SUNDAY: Detroit Auto Show starts (Jan. 11-25)
MONDAY: Fed budget; Fed's Lockhart speaks; Earnings from Alcoa
TUESDAY: International trade; Fed's Lacker speaks
WEDNESDAY: Weekly mortgage applications; retail sales; import/export prices; business inventories; weekly crude inventories; Fed's Stern speaks; Earnings from Xilinx
THURSDAY: ECB announcement; PPI; weekly jobless claims; Philadelphia, NY Fed surveys; Fed's beige book; Earnings from Genentech, Intel
FRIDAY: CPI; industrial output; consumer sentiment; Fed's Lacker speaks