Stocks ended a strong two-week run with a thud Friday as financial stocks took a beating and weakness seeped into other sectors.
The Dow Jones Industrial Average lost 1.7 percent and the Nasdaqshed 1.8 percent, while theS&P 500 ended down 2 percent.
Trading was volatile, with the expiration of four different equity futures and options contracts, also known as quadruple witching.
Today's decline comes after a drop Thursday that shaved 1 percent off the Dow and S&Pand half a percent off the Nasdaq. Still, all three major indexes eked out gains for the week, bringing the Dow its first back-to-back positive weeks since May.
Of course, that raises the question all the more: Is the rally over or just beginning?
"Money was coming out big time right before the market started to rally," Charles Biderman, CEO of TrimTabs Investment Research told CNBC. "Now we’ve seen big inflows like $12-15 billion through yesterday which is a contrarian indicator and says to me that this rally may be over with option expiration today."
Bank of America was the biggest percentage decliner on the Dow, down 11 percent, followed by JPMorgan , down 7.2 percent, as financials gave up some of their recent gains amid disappointment in the TALF turnout.
Investors applied for less than 2.5 percent of the $200 billion the Fed has set aside to boost consumer and small-business spending.
And General Electric shares fell 5.8 percent in heavy trading after analysts slashed their full-year forecast for the Dow component, which is also the parent of CNBC.
But Citigroup ranked among the handful of Dow gainers, rising 0.8 percent, after the bank announced two senior management changes in its continuing effort to restructure. Gary Crittenden, previously chief financial officer, has been named to the newly created role of chairman of Citi Holdings, and Edward “Ned” Kelly, previously the head of global banking, will become chief financial officer.
General Motors jumped 10 percent after an adviser to Obama's auto task force said government aid to GM and Chrysler may have to be ramped up.
Merck and Johnson & Johnson were also among the biggest Dow percent gainers, up 2.6 percent and 3.2 percent, respectively, as some stocks in the sector rebounded from recent declines. And J&J and Bayer received U.S. regulatory approval for their anticoagulant drug.
Palm shares rose 2.3 percent even after the handset maker said its upcoming Pre phone needs "more polishing." Elsewhere in the handset sector, Sony Ericsson warned that it would sell barely half the handsets it did in the last quarter.
The week was dominated by outrage over AIG bonuses and the Fed's surprise announcement that it was buying U.S. debt, which sent mortgage rates to sub-5-percent territory and delivered the euro one of its best weeks against the dollar since it was introduced in 1999.
For the week, nine out of 10 S&P sectors were positive, led by utilities, which gained 8 percent. Health care was the only negative sector, down 2 percent.
Investors started to pile into beaten-down financials this week after a handful of banks said they were off to a good start for the year. Citigroup was the biggest Dow percentage gainer for the week, up 47 percent. Bank of America also ranked among the week's top Dow gainers, up 7.5 percent.
American Express was the worst performer on the Dow this week, down 6.3 percent, after the credit-card provider said earlier this week that defaults and delinquencies jumped in February and then on Friday, Friedman, Billings, Ramsey warned that AmEx is likely to endure more losses and a dividend cut is imminent.
Techs enjoyed a bit of a rally this week following news that Oracle will begin paying a dividend and as M&A buzz increased in the sector, with IBM making a move for Sun Microsystems . Also, product upgrades from Dell and Apple .
In fact, techs are on such a roll that IBM is the only Dow component that's positive year to date — up nearly 10 percent. Citigroup, despite its recent run, remains the Dow's worst performer year to date, down nearly 61 percent.
Oil prices rebounded, topping $50 for the first time since January. The front-month contract settled at $51.06.
Looking to the global economy, leading up to the Group of 20 meeting in Brussels, the European Union will propose doubling the International Monetary Fund's arsenal for fighting economic slowdown to $500 billion, according to a draft of the proposal.
But the EU itself is trying to keep a lid on stimulus spending, while the US added $5 billion in funds to help auto parts makers.
Also in Washington, the government continued to grapple with populist outrage over bonuses paid out at AIG. A House panel will consider legislation to prevent bonus payouts to any companies receiving money under the TARP program.
Next week is a busy week for the auto task force and on Thursday Treasury Secretary Tim Geithner will speak. Both existing- and new-home sales are on the calendar, as well as durable goods and the final reading on fourth-quarter GDP.
MONDAY: Existing-home sales; Earnings from Tiffany, Walgreen
TUESDAY: Fed's Evan's speaks; Obama press conference; Earnings from Carnival
WEDNESDAY: Weekly mortgage applications; durable-goods orders; new-home sales; weekly crude inventories; Fed's Pianalto and Yellen speak
THURSDAY: Final GDP; Weekly jobless claims; new-home sales; earnings from Best Buy, GameStop; Geithner speaks; Fed's Lockhart, Fisher, Lacker and Stern speak
FRIDAY: Personal income/spending; Consumer confidence